Posted in economics

Addressing India’s Inflationary Woes

Dr. Debesh Roy, Chairman, InsPIRE

Introduction

The global economy is hamstrung with rising inflation and slowing growth. Inflation is now well-entrenched across the world, and is definitely not transitory in nature, as thought by US Fed Chair Mr. Jerome Powell and several economists, few months ago. The US consumer inflation surged ahead to touch a more than four decades high of 8.6% annual rate in May 2022, due to spiraling energy and food prices. Similarly, inflation in the UK touched a 40-year high of 9% in April, and is expected to touch 9.1% in May. Further six member states of the EU have inflation rates above 10%, and the average is 8.1%. Most developing countries have been suffering from the wrath of inflation and slowdown in economic growth. Inflation in developed as well as developing economies has been sparked by low interest rates and government stimulus to counter the Covid-19 pandemic’s impact, and disruption in global supply chains, followed by elevated energy and commodity prices due to the Russia-Ukraine crisis.

India has been witnessing rise in retail inflation above the Reserve Bank of India’s (RBI) mandated tolerance level of 6%, from January 2022. Wholesale inflation, however, started rising alarmingly from March 2021, onwards. The RBI and Government of India (GoI) have initiated monetary and fiscal measures, respectively, to curb inflation.

Easing of India’s Retail Inflation

India’s retail [Consumer Price Index (CPI)] inflation eased in May 2022 to 7.04% from an almost eight years high of 7.79% in April (Figure 1). However, it remained above RBI’s upper tolerance level of 6% for the fifth month in a row.  There was a broad-based deceleration in inflation, mainly on account of slower increases in food prices. Core inflation, too, moderated in May to 6.09% from 6.96% in the previous month.

The slowing down of inflation was mainly on account of deceleration in rural CPI inflation, which declined significantly from 8.38% in April 2022 to 7.01% in May (Figure 1), as a result of a decline in the combined weighted contribution of health, education and personal care and effects by 35 basis points (bps), and 40 bps decline in the weighted contribution of food and beverages. Urban inflation, however, declined marginally from 7.09% in April to 7.08% in May (Figure 1). Favourable base effect, too contributed to the decline in inflation. However, there are more upside risks to inflation, with international crude oil prices remaining stubbornly high.

Source: Data accessed from MoSPI, GoI

The consumer food price inflation (CFPI) is the major determinant of retail inflation in India, with a weightage of 39.1% in the CPI. During the six-month period December 2021 to May 2022, CFPI more than doubled from 4.05% in December to 8.31% in April, before dropping to 7.97% in May (Figure 2). This was due to elevated oils and fats inflation at 24.3% in December to 13.3% in May (Figure 3) and a sharp increase in vegetable inflation from -3% in December to 18.3% in May (Figure 5). India imports nearly 60% of its crude edible oil requirement. Around 90% of India’s annual crude sunflower oil requirement of 22-23 lakh tonne is imported from Ukraine to the tune of 70% and 20% from Russia and the remaining 10% from Argentina. The Ukraine-Russia conflict has disrupted supplies of sunflower oil and sharply pushed up its price in the international market, impacting India’s import cost.  

The principal reason for a sharp rise in vegetable prices is the increase in transportation cost due to high fuel price, which in turn is the result of elevated international price of crude oil. High tomato prices, due to fall in production on account of heatwaves prevailing in different parts of the country, also impacted vegetable inflation.

Source: Data accessed from MoSPI, GoI

While cereal inflation increased steadily from 2.6 % in December 2021 to 5,3% in May 2022, pulses inflation declined from 2.4% to -0.4% during the same period (Figure 3). Decline in pulses inflation was on account of record estimated production of pulses in the Kharif and Rabi seasons in the year 2021-22, as well as higher imports of Arhar and Urad.

Source: Data accessed from MoSPI, GoI

Inflation in eggs declined sharply from 4.2% in February to -4.6% in May (Figure 4). Meat and fish inflation rose to 8.2% in May from 7% in the previous month, before falling from 9.6% in March, while milk inflation increased steadily from 3.8% in December 2021 to 5.6% in May 2022 (Figure 4).

Source: Data accessed from MoSPI, GoI

Fruit inflation declined sharply from 5% in April to 2.3% in May, while sugar inflation fell from 5.2% to 4.3% (Figure 5).

Source: Data accessed from MoSPI, GoI

Fuel and light inflation remained elevated during the period at 11% in December 2021, 10.8% in April 2022 and 9.5% in May 2022 (Figure 6), on account of high international crude oil prices, with Brent crude prices remaining around $120 per barrel.

Source: Data accessed from MoSPI, GoI

Surging Wholesale Inflation

India’s wholesale price index (WPI) inflation increased from 15.1 in April to 15.9% in May, the highest level since August 1991, driven by soaring inflation of primary articles (15.5% to 19.7%) and fuel and power inflation (38.7% to 40.6%) (Figure 7). The wholesale inflation of manufactured products, however, eased from 10.9% to 10.1% (Figure 7).

Figure 8 shows that, the gap between wholesale and retail inflation narrowed down from 8.61% in December 2021 to 7.29% in April 2022, before rising to 8.84% in May. This was when retail inflation eased from 7.8% to 7% and wholesale inflation surged from 15.1% to 15.9%.

WPI inflation in the country has been increasing much faster than CPI inflation, since March 2021. Consequently, it is expected that retail inflation would slowly move closer towards wholesale inflation, in the months to come.  Dr. Pronab Sen, former Chief Statistician of India has put it succinctly: “Rising WPI will, by and large, translate into higher retail prices.” High wholesale inflation indicates that input price pressures are still quite high, which will eventually reflect on retail prices.

Source: Data accessed from Office of the Economic Adviser, DPIIT, Ministry of Commerce & Industry, GoI
Source: Data accessed from MoSPI, GoI and Office of the Economic Adviser, DPIIT, Ministry of Commerce & Industry, GoI

Addressing Inflationary Woes

The RBI raised the policy repo rate by 40 bps in May 2022 and 50 bps in June 2022. The central bank is no longer behind the curve and the transmission of the rate in the banking system is also expected to be reasonably quick. While increasing the repo rate could hurt India’s economic recovery, the inability to control inflation will hurt the country’s growth prospects in the medium to long term.

RBI’s inflation projection for FY23 is 6.7%. It is expected that RBI’s Monetary Policy Committee (MPC) could raise the policy repo rate by 60-85 bps by December 2023, i.e., to 5.5-5.75%, depending on the inflation trajectory. A further cause for concern is the depreciation of the rupee, which could worsen inflation. RBI Governor Mr. Shaktikanta Das, in his June 08, 2022 statement on the Monetary Policy has expressed RBI’s approach to control inflation as: “Our approach underscores a commitment to move towards normal monetary conditions in a calibrated manner. We will remain focused on bringing down inflation closer to the target and fostering macroeconomic stability.”

The full impact of the measures announced by the government, viz, excise duty cuts on petrol and diesel, could be seen in the June inflation figure, as the cut in excise duty was announced in the last week of May. With the end of Russia-Ukraine conflict nowhere in sight, inflationary situation could worsen across the world. Although there has been a steady rise in revenue collection so far in FY23, GoI may have to tread the tightrope of balancing excise duty cut for controlling fuel inflation with incurring the budgeted capital expenditure for economic growth.

Posted in economics, MARKET ECONOMY

RBI Intensifies its Attack on Spiraling Inflation

Dr Debesh Roy, Chairman, InsPIRE

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on 8th June 2022, unanimously decided to raise the policy repo rate by 50 basis points (bps), the steepest increase in more than nine years, to 4.9 per cent. This is the second hike in the repo rate in just over a month, adding up 90 bps from 4 per cent set in May 2020, with a view to controlling inflation, aggressively. While the RBI was behind the curve to control inflation till the April MPC meeting, it took a decisive step to control spiraling inflation by raising the first repo rate hike in two years by 40 bps in the off-cycle MPC meeting  on 4th May 2022.

The MPC has increased the inflation forecast by 100 bps to 6.7 per cent for fiscal year (FY) 2022-23, and has projected an inflation rate of 7.5 per cent, 7.4 per cent, and 6.2 per cent for Q1, Q2 and Q3 of FY23, respectively. For the first time since the flexible inflation-targeting framework was introduced in October 2016, for policy repo rate setting by the MPC, the RBI, in all likelihood, will fail to achieve its mandate – which is to keep the average inflation at 4 per cent with a +/- 2 per cent tolerance limit – for three consecutive quarters. As per the mandate, RBI would need to explain to Government of India the reasons for inflation exceeding the upper tolerance limit of 6 per cent for three consecutive quarters.

Inflation is now a global phenomenon, due to the Ukraine-Russia war, Covid-related lockdowns in China and global supply chain disruptions. As stated by RBI Governor Mr. Shaktikanta Das, “The war has led to globalisation of inflation. Not surprisingly, central banks are reorienting and recalibrating their monetary policies. Emerging market economies (EMEs) are facing bigger challenges from increased market turbulence, monetary policy shifts in advanced economies (AEs) and their spillovers. The process of economic recovery in EMEs is also getting affected”.

The MPC also decided to drop the accommodative stance to “remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth”. As RBI has embarked on an aggressive policy tightening cycle,  the MPC is expected to resort to calibrated tightening and could  decide on two more hikes of 25 bps each in FY23, taking the repo rate to 5.65 per cent by March 2023.

However, there could arise a risk of a wide divergence from RBI’s inflation projections, which could result in a sharper rate hike. Research by SBI shows that RBI could factor in a rate hike in August and even October MPC meetings, and take the repo rate higher than pre-pandemic level by August to 5.25 per cent and in October to 5.5 per cent. The peak rate at the end of the cycle, according to the SBI report now has a lower bound of 5.5 per cent and could go up to 5.75 per cent, depending on inflation trajectory.

Banks have raised their lending rates in response to the rise in the repo rate. This will cause borrowers to pay higher equated monthly instalments for their loans. Further, the demand for loans by retail as well as corporate borrowers would fall, restricting economic activities.

The RBI, however, has kept its growth forecast unchanged at 7.2 per cent for FY23,  with Q1, Q2 and Q3 growth at 16.2 per cent, 6.2 per cent,  4.1 per cent; and 4.0 per cent, respectively, with risks broadly balanced. According to the MPC statement, the recovery in domestic economic activity is gathering strength due to the following factors:

  • Rural consumption should benefit from the likely normal south-west monsoon and the expected improvement in agricultural prospects;
  • A rebound in contact-intensive services is likely to bolster urban consumption, going forward;
  • Investment activity is expected to be supported by improving capacity utilisation, the government’s capex push, and strengthening bank credit;
  • Growth of merchandise and services exports is set to sustain the recent buoyancy.

However, the MPC has warned that spillovers from prolonged geopolitical tensions, elevated commodity prices, continued supply bottlenecks and tightening global financial conditions nevertheless weigh on the growth outlook.

Posted in CLIMATE CHANGE, Law and Policy

IPCC Assessment Report 2022: Mitigation of Climate Change

Bijetri Roy, Managing Director & Chief Strategy Officer, InsPIRE

On 4th April, 2022, the Intergovernmental Panel on Climate Change (IPCC) published their IPCC Assessment Report 2022 on Mitigation of Climate Change by Working Group III (WG-III).

The Working Group III report provides an updated global assessment of climate change mitigation progress and pledges, and examines the sources of global emissions. It explains developments in emission reduction and mitigation efforts, assessing the impact of national climate pledges in relation to long-term emissions goals.

Let’s look at the key highlights of this report:

2010-2019: Average annual GHG emissions at highest levels in human history

As per the report, GHG emissions were 54% higher in 2019 than in 1990, however, the growth is slowing down. Global net anthropogenic GHG levels are at 59 GtCO2e. Average annual rate of growth has slowed to 1.3% per year in 2010-19 as compared to 2.1% per year during 2000-09.

At least 18 countries have reduced their GHG emissions for more than a period of 10 years through various measures like energy efficiency, decarbonization and reduced demands for energy.

Source: https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_PressConferenceSlides.pdf

Current Nationally Determined Contributions (NDCs) are insufficient

Current pledges to the Paris Agreement are insufficient and emissions must fall 43% by 2030 compared to 2019. Unless there are immediate and deep emissions reductions across all sectors, 1.5°C is beyond reach.

Increased evidence of climate action

There is an increased evidence of climate action. LDCs have emitted only 3.3% of global emissions in 2019, but carbon inequality still prevails with the average per capita emissions in 2019 being 1.7 tCO2e, as compared to the global average of 6.9 tCO2e.

Source: https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_PressConferenceSlides.pdf

In some cases, costs for renewables have fallen below those of fossil fuels

Source: https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_PressConferenceSlides.pdf

Electricity systems in some countries and regions are already predominantly powered by renewables

Source: https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_PressConferenceSlides.pdf

Limiting warming to 1.5 °C

Global GHG emissions peak before 2025, reduced by 43% by 2030. Methane reduced by 34% by 2030. (based on IPCC-assessed scenarios)

Limiting warming to around 2°C

Global GHG emissions peak before 2025, reduced by 27% by 2030. (based on IPCC-assessed scenarios)

Source: https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_PressConferenceSlides.pdf

The temperature will stabilize when we reach net zero emissions

Source: https://report.ipcc.ch/ar6wg3/pdf/IPCC_AR6_WGIII_PressConferenceSlides.pdf

There are options available now in every sector that can at least halve emissions by 2030

Energy


⎻ Major transitions are required to limit global warming
⎻ Reduction in fossil fuel use and use of carbon capture and storage
⎻ Low- or no-carbon energy systems
⎻ Widespread electrification and improved energy efficiency
⎻ Alternative fuels: e.g. hydrogen and sustainable biofuels

Demand and services

⎻ Potential to bring down global emissions by 40-70% by 2050
⎻ Walking and cycling, electrified transport, reducing air travel, and adapting houses make large contributions
⎻ Lifestyle changes require systemic changes across all of society
⎻ Some people require additional housing, energy and resources for human wellbeing

Transport

⎻ Reducing demand and low-carbon technologies are key to reducing emissions
⎻ Electric vehicles: greatest potential
⎻ Battery technology: advances could assist electric rail, trucks
⎻ Aviation and shipping: alternative fuels (low-emission hydrogen and biofuels) needed
⎻ Overall, substantial potential but depends on decarbonizing the power sector

Carbon Dioxide Removal

⎻ Required to counterbalance hard-to-eliminate emissions
⎻ Through biological methods: reforestation, and soil carbon sequestration
⎻ New technologies require more research, up-front investment, and proof of concept at larger scales
⎻ Essential to achieve net zero
⎻ Agreed methods for measuring, reporting and verification required

Policies, regulatory and economic instruments


⎻ Regulatory and economic instruments have already proven effective in reducing emissions
⎻ Policy packages and economy-wide packages are able to achieve systemic change
⎻ Ambitious and effective mitigation requires coordination across government and society

Technology and Innovation

⎻ Investment and policies push forward low emissions technological innovation
⎻ Effective decision making requires assessing potential benefits, barriers and risks
⎻ Some options are technically viable, rapidly becoming cost-effective, and have relatively high public support. Other options face barriers
⎻ Adoption of low-emission technologies is slower in most developing countries, particularly the least developed ones


The evidence is clear: The time for action is now

Posted in economics

India’s Economic Growth: Prospects and Challenges

Dr Debesh Roy, Chairman, InsPIRE

The prospects for India’s real GDP growth for 2021-22 received a setback with the latest official projection (second advance estimate of NSO, MoSPI, GoI on 28 February 2022) dropping to 8.9 per cent (Figure 1) from 9.2 per cent (first advance estimate on 07 January 2022). However, the quantum of real GDP, has been estimated to increase from INR147.54 trillion (USD 1.95 trillion) (FAE) to INR 147.72 trillion (USD 1.95 trillion) (SAE).  The growth of nominal GDP was revised upward from 17.6 per cent to 19.4 per cent, with the quantum of nominal GDP witnessing an uptick from INR 232.15 trillion (USD 3.06 trillion) to INR 236.44 trillion (USD 3.12 trillion) (SAE). The real GDP growth estimate for the previous fiscal year showed an improvement to -6.6 per cent (first revised estimate) from   -7.3 per cent (provisional estimate).  

Note: FRE: First Revised Estimate; SAE: Second Advance Estimate
Source: Based on data accessed from MoSPI, GoI

India’s third quarter (Q3) real GDP fell sharply to 5.4 per cent from 8.5 per cent (Q2) and 20.3 per cent (Q1) (Figure 2). 

Source: Based on data accessed from MoSPI, GoI

Projections of India’s real GDP growth for FY 22 and FY23 are presented in the following table. The lowest estimate for FY 22 is 8.7 per cent by the World Bank and the highest is 9.4 per cent by OECD. The highest projection for FY 23 at 8-8.5 percent has been estimated in the Economic Survey 2021-22 (MoF, GoI) and the lowest is by the World Bank at 6.8 per cent.

Source: (1) MoSPI, GoI, and Economic Survey 2021-22, MoF, GoI; (2) Monetary Policy Statement February 10, 2022, RBI; (3) Ecowrap, February 28, 2022, SBI; (4) World Economic Outlook, January 2022, IMF; (5) Global Economic Prospects, January 2022, World Bank; (6) India Economic Outlook, OECD, December 2021

India’s real GVA is estimated to grow at 8.3 per cent (SAE) in FY22, downgraded from 8.6 per cent (FAE) (Figure 3). The sectors which witnessed high growth are mining and quarrying (12.6 per cent from a low base of -8.6 per cent in FY21), public administration (12.5 per cent from -5.5 per cent), manufacturing (10.5 per cent from -0.6 per cent), and trade, hotels, transport, etc. (11.6 per cent from -20.2 per cent). While the agriculture sector is estimated to grow at a constant rate of 3.3 per cent as in the previous year, financial, real estate and professional sector is estimated to grow at 4.3 per cent (from 2.2 per cent in FY 21) (Figure 3).

Source: Based on data accessed from MoSPI, GoI

India’s growth has traditionally been consumption-led, and the share of private final consumption expenditure (PFCE) in GDP is estimated to decline to 56.6 per cent in FY22 (SAE) from 57.3 per cent in FY21 (Figure 4). The pandemic-induced loss of income and livelihood opportunities in the contact intensive service sector, the informal sector and rural areas, are expected to dampen India’s growth prospects for FY22. However, GoI’s thrust on investment in infrastructure, could lead to high and sustainable growth in income, employment and economic growth. While the estimated increase in the share of gross fixed capital formation (GFCF) from 30.5 per cent in FY21 to 32 per cent in FY22, is a stimulant for growth, the share of government final consumption expenditure (GFCE) which is estimated to decline from 11.3 per cent to 10.9 per cent, could drag down growth. However, the FY 23 Union Budget’s focus on investment in infrastructure with a significantly higher allocation over that of the previous Budget, would crowd in private investment and enable India to grow at around 8 per cent, while continuing to be the fastest growing large economy in the world.  

Source: Based on data accessed from MoSPI, GoI

The economic impact of the third wave of the pandemic has not been as severe as that of the previous waves. The impact of global headwinds like the Russia-Ukraine conflict and the consequent sharp rise in the prices of crude oil and commodity prices, have not been factored in these estimates, and therefore, the final growth print could be 1-2 per cent lower. About 85 per cent of India’s demand for crude oil is met from imports and with the recent sharp rise in Brent crude price to USD 130/ barrel, there would be a sharp rise in the country’s import bill, worsening the country’s current account deficit. This would also lead to a sharper rise in retail inflation, which has already crossed RBI’s upper tolerance limit of 6 per cent. The RBI has continued with its accommodative stance with a view to revving up economic growth. However, with worsening inflationary expectations, the RBI could switch to a neutral stance, and could consider raising the repo rate by 25 bps in the next MPC meeting in April 2022 or in the June 2022 meeting. The developed economies are suffering from the worst phase of inflation in the last 3-4 decades, and the Central Banks in these countries have started tightening liquidity. The US Federal Reserve is expected to raise the Fed rate from the present near zero rate by 25 basis points, in March 2022, and at least two-three more rate hikes during the year.

The Russia-Ukraine conflict has also eroded financial markets globally, including India. Russian strikes at Europe’s largest nuclear plant in Ukraine wiped INR 5 trillion (USD 66 billion) off investor wealth in India on 04 March 2022, with the geopolitical tension eroding about INR 15 trillion ($197 billion) in fortune from 15 February 2022, when Russia announced a partial withdrawal of its troops from Ukrainian border only to launch a full-scale invasion later on.

Geopolitics could erode India’s growth prospects, depending on how long the Russia-Ukraine conflict and the consequent sanctions against Russia would continue. However, if the conflict ends within the next few months, and India gives a big push to investment in infrastructure, the country’s growth prospects could improve, and a 7.8 – 8 per cent growth in FY23 could be achievable.

Posted in CLIMATE CHANGE

India at COP-26: Presenting the Panchamrit of LIFE

Bijetri Roy, Managing Director & Chief Strategy Officer, InsPIRE

On the first day of the UNCCC COP-26 in Glasgow, Indian Prime Minister, Shri Narendra Modi silenced critics who were trying to write off the vision of India at COP-26 as “not bold” by setting out a bold vision with action. From net-zero greenhouse gas emissions by 2070 backed with strong achievable commitments, to suggesting a just, equitable, human-centric and planet-positive world, India is surely set to make the world a better place, to say the least!

India’s announcement comprised the Panchamrit (5 elements for climate action):

  1. Non-fossil electricity capacity of 500 GW by 2030;
  2. 50% electricity capacity from renewable energy by 2030;
  3. 1 billion tonne carbon emission reduction by 2030;
  4. 45% reduction in carbon emission intensity of GDP by 2030;
  5. Net-zero emissions by 2070.

To quote the Hon’ble Prime Minister, “All of us have to make a conscious choice. The choice of crores of people will mitigate the fight against Climate Change with each passing day.” He suggested that we all make the conscious effort of adopting LIFE (lifestyle for environment).

Developed nations should be expected to make climate finance of USD 1 trillion available at the earliest because it is important to track climate finance just the way we track the progress of climate mitigation and appropriate pressure should be created upon those that don’t meet their climate finance commitments.

सम्-गच्छ-ध्वम्,सम्-व-दद्वम्,सम्वोमानसिजानताम् (Let’s all interact together and everyone’s mind should be one).

Infographic by Institute for Pioneering Insightful Research & Edutech Pvt Ltd (InsPIRE)
Posted in Law and Policy

Motherhood or Not, That’s the Question: Decoding the Recent Abortion Law Amendments in India

Sarabjit Kaur, Associate Creative Ideator, InsPIRE

Motherhood!! Such an overwhelming feeling it is for any woman! To be able to nourish a new life within you! Makes you feel nothing less than a superwoman! But what if a woman conceives without knowing so? Well, in that case, she can choose to continue with the pregnancy or abort it. Now, the tough situation comes when a woman has to make up her mind to give up her pregnancy. It becomes all the more daunting when such a pregnancy is a result of sexual violence or abuse. Imagine a woman undergoing the pain of an unfortunate incident as heinous as rape. Such a woman will never be interested in reliving the painful incident by continuing with the unwanted pregnancy. Abortion is the saviour in any such scenario.

Abortion laws have been recently amended via the Medical Termination of Pregnancy (Amendment) Act, 2021 to allow a relatively easier access to abortion care in India. Under the recent amendments, the State Governments have been directed to set up Medical Boards in their respective states to exercise such powers as have been prescribed in the Act.

The 2021 Act has its own silver lining as it aims at making the abortion-related procedural formalities comparatively easier. Now, only a single medical practitioner’s opinion is sufficient to terminate a pregnancy which is less than 20 weeks old.

The star of the 2021 Act is the provision permitting rape victims to undergo abortion up to a period of 24 weeks. This can prove to be a game-changer in the Indian scenario. We cannot deny the lack of primary health care facilities in India. Several surveys have exposed harsh realities concerning rape victims. Almost half of the rape victims never get any medical attention related to rape. Another disturbing statistical points out that about 1/3rd of the rape victims do not discover their pregnancy until they have already entered their second trimester. You may now be able to appreciate the saving power of this provision; allowing termination of pregnancy up to a period of 24 weeks.

The second major change impacts the pregnancies with substantial foetal abnormalities. Such women can approach the prospective Medical Board in their respective state to seek medical opinion concerning abortion. The 2021 Act provides that the Medical Board shall have the final say in such matters. Furthermore, the upper gestational limit has been removed in case of such pregnancies.

Reinforcing the Puttaswamy judgement, the 2021 Act finally aims to honour the ‘right to privacy’ of women availing abortion care in India. The Act bars the medical practitioner from disclosing any details of the woman undergo abortion to anyone except to a person prescribed under law.

With such promising changes, the future definitely looks brighter in case of abortion care in India. We cannot say that all has been achieved but the recent amendments can certainly be regarded as a step in the right direction. It will require considerable effort on the part of the State Governments to be able to implement the provisions prescribed under the recent amendments. Although the Act is inadvertently ambitious, we can only hope that it is able to make the situation relatively better for the concerned vulnerable women.

Disclaimer

This is an analysis of the Medical Termination of Pregnancy (Amendment) Act, 2021. Views and ideas expressed in this article must be read as an analytical piece, rather than a debate between right and wrong.

Posted in economics

Monetary Policy: RBI Retains Accommodative Stance, but Signals Beginning of Normalisation

Dr Debesh Roy, Chairman, InsPIRE

The Reserve Bank of India (RBI) retained its accommodative stance and kept policy rates unchanged in its latest monetary policy announced on 8 October 2021. However, the beginning of normalisation of policy stance by halting its bond-buying efforts, was evident.

The six-member Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, unanimously decided to retain the policy repo rate at 4% and the reverse repo rate 3.35%. However, all members, except one, voted to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward. The Governor made it clear: “We do realise that as we approach the shore; when the shore is so close, we don’t want to rock the boat because we realise there is a life, there is a journey beyond the shore”. 

However, the RBI decided to suspend the Government Securities Acquisition Programme (G-SAP), the Indian version of Quantitative Easing (QE) of the US. Through the G-SAP, RBI has  injected INR 2.2 trillion (USD 29.3 billion) of liquidity in the system [out of the total INR 2.37 trillion (USD 31.5 billion) injected through bonds], during the first six months of 2021-22. The central bank would absorb a higher quantum of liquidity gradually through its 14-day variable rate reverse repo (VRRR) auctions, from the current INR 4 trillion (USD 53.2 billion) to INR 6 trillion (USD 79.9 billion) in stages, by December 2021.

The Governor justified the suspension of G-SAP by stating: “Given the existing liquidity overhang, the absence of a need for additional borrowing for GST compensation and the expected expansion of liquidity in the system as Government spending increases in line with budget estimates, the need for undertaking further G-SAP operations at this juncture does not arise. The Reserve Bank, however, would remain in readiness to undertake G-SAP as and when warranted by liquidity conditions and also continue to flexibly conduct other liquidity management operations including Operation Twist (OT) and regular open market operations (OMOs)”.

Deputy Governor Michael D. Patra explained that RBI is still in passive liquidity mode and was accepting what the market was offering, and that the central bank aims to move to an active mode of liquidity management.

The RBI sharply moderated the outlook for CPI inflation during 2021-22 from 5.7% projected in the previous MPC meeting (04-06 August 2021) to 5.3%, due to easing of food prices, combined with favourable base effects. However, prices of crude oil which will remain volatile over uncertainties on the global supply and demand conditions, rising metals and energy prices, acute shortage of key industrial components and high logistics costs are adding to input cost pressures. The inflation projection for Q2 FY2021-22 was reduced from 5.9% to 5.1%; and 5.3% to 4.5% in Q3. The inflation projection, however, remained the same at 5.8% for Q4. The risks continued to remain broadly balanced. The inflation projection for Q1 2022-23 was raised from 5.1% to 5.2%.

Projection for India’s GDP growth rate by the MPC was at 9.5%, which was same as the previous projection. Domestic economic activity is expanding with the weakening of the second covid wave. With favourable prospects for kharif and rabi crops, rural demand is expected to be buoyant. Significant increase in the pace of vaccination and the forthcoming festival season, are expected to support a rebound in the pent-up demand for contact intensive services, and boost growth. Easy monetary and financial conditions would also support growth. Further,  the reforms undertaken by the government focusing on infrastructure development, asset monetisation, taxation, telecom sector and banking sector should push up investor confidence, enhance capacity expansion and facilitate crowding in of private investment. The production-linked incentive (PLI) scheme also augurs well for domestic manufacturing and exports.

However, downside risks to growth are global semiconductor shortages, elevated commodity prices and input costs, and potential global financial market volatility. Projection for Q2 GDP growth was raised from 7.3% in the previous MPC meeting to 7.9%. Q3 projection was retained at  6.3%, and 6.1% growth was retained for Q4. The real GDP growth for Q1 2022-23 was estimated at 17.2%, which is same as the previous projection.

Given the inflation expectations and growth projections for the current financial year, it is expected that the RBI would retain its accommodative stance at least till the MPC meeting in April 2022, while maintaining the policy repo rate at 4%. However, the next step for the central bank in liquidity management would be to raise the reverse repo rate from 3.35% to 3.50% in December 2021 and 3.75% in February 2022.