June 08, 2023

Turbulence Ahead For The Economy

By Linus Garg
First publised on 2022-05-13 02:08:30

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Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

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 After four days of volatile trading which resulted in losses for investors, the stock markets crashed on Thursday. Sensex tumbled by 1158 points to 52930 and Nifty went down by 359 points to 15808. Investors were jittery ahead of the announcement of the CPI data and their worst fears were confirmed when the NSO reported that inflation, as measured by the consumer price index (CPI) stood at 7.8% in April, the highest in eight years.

Food and fuels prices are fuelling the inflation which, according to the Finance Ministry, is likely to stay elevated in FY22-23. The ministry said that timely action by the government and the RBI will reduce the duration of inflation. It also said that India was better placed than most nations to tide over the global economic stress and record steady growth.

During the trading hours in Indian stock markets, the US inflation figure for April was put out. It stood at 8.3% which was lower than March but still high enough to spook the market which now expects another stiff rate hike by the US Fed. Such a hike will result in another flight of funds from the Indian stock markets as FIIs will withdraw funds.
The day was also bad for the Indian rupee, which hit an all-time low of Rs 77.63 per dollar and later settled at Rs 77.5025. A falling rupee will add to inflation as fuel costs and prices of imported inputs for industry will increase leading to passing on of the costs to the consumer.

Indian economy is now entering a very turbulent phase. The cost-push inflation, along with rate hikes by the RBI and subdued consumer demand makes the picture hazy for companies. The Centre and the states should seriously think of reducing taxes on fuel as an effective short term measure to keep prices in control.