Met Forecasts Above-Normal Monsoon: How Does It Impact India's Inflation Concerns? A Closer Look

In its latest monthly economic review, the finance ministry of India has revealed that the forecast of above-normal monsoon rains in 2024 bodes well for the country's agricultural sector. The anticipated good harvest is expected to alleviate inflationary pressures in the coming months.

What Finance Ministry Economic Review Report Says?While global inflation has largely remained stable or decreased in most regions, the recent rise in inflationary pressures across nations, coupled with persistent core inflation, has raised some concerns, according to the finance ministry's Monthly Economic Review for March.

Focus Area For PolicymakersCore inflation, which excludes the prices of food and energy known for their volatility, has been a focus area for policymakers.
IMD ForecastThe positive outlook follows the India Meteorological Department's forecast of an above-normal south-west monsoon from June to September, estimated at 106 percent of the long-period average.
Optimistic PredictionThis optimistic prediction has raised hopes for a revival of the agricultural sector, which faced challenges due to erratic rainfall last year.

How Is It Good News For India's Inflation Concerns? Food InflationIndia's food inflation, which contributes significantly to the overall consumer price basket, saw a slight decrease in March, falling to 8.52 percent from 8.66 percent in February. This decline comes despite elevated prices of meat, fish, eggs, and vegetables. Food inflation had stood at 8.30 percent in January and 9.53 percent in December.
Retail InflationMeanwhile, retail inflation, measured by the consumer price index, dropped to a 10-month low of 4.85 percent in March, dipping below the 5 percent mark for the first time since November 2023. However, it remains above the central bank's target of 4 percent.

Reduction In Trade DeficitLooking ahead, the finance ministry anticipates a reduction in the trade deficit in the coming years, thanks to the production-linked incentive (PLI) scheme. The scheme, which currently covers 14 sectors including telecom, electronics, automobiles, and pharmaceuticals, is set to be expanded to newer sectors. India's merchandise trade deficit stood at $240 billion in 2023/24, down from $265 billion a year earlier.