NEW DELHI — Low inflation for the rest of the year will result in improving
real purchasing power of households and lowering input costs for corporates in
India, an HSBC Research report said on Monday, adding that a less obvious, but
equally important benefit, could be via fiscal finances.
The rest of the year will likely get support from lower
inflation of about 2.5 per cent for the next six months.
With public granaries stocked up and monsoon rains likely
to be favourable, food inflation is set to remain low. Core inflation as well
will likely remain range-bound, led by weaker commodity prices, softer growth,
a stronger rupee (against the US dollar), and imported disinflation from China,
said the report, while updating its 100 indicators database for the country.
These indicators map various sectors, and gives a
thorough and sequential picture of growth.
There are some pressures on the FY26 fiscal deficit
target from lower-than-budgeted nominal GDP growth and direct tax buoyancy, and
higher defence spending.
“However, there are offsetting factors as well,
specifically a higher-than-budgeted RBI dividend (Rs 2.7 trillion). Most
importantly, however, the option for the government to appropriate some of the
fall in global oil prices by raising oil excise tax,” said the HSBC report.
Given inflation is already low, “we estimate that if the
government usurps half of the oil ‘bounty’ instead of lowering pump prices, it
will not just meet the fiscal deficit target but also have some extra funds
available for growth support,” it added.
The March quarter (1Q25) was a notch better than before,
with 66 per cent of the indicators growing positively (versus 64 per cent and
61 per cent in the previous two quarters).
Informal sector consumption led the charge, benefitting
from a rise in state capex (in March), a good winter crop, higher real rural
wages, and improved rural terms of trade.
On the other hand, urban consumption indicators, such as
consumer durables production and imports, were softer.
“We have got a third of the activity data for April and
64 per cent of the indicators are growing positively. Informal sector
consumption seems to have picked up further in the month (proxied by domestic
non-cess GST),” the report mentioned.
