Sustained value spike poses danger to development estimates: MoF

The Russia-Ukraine battle can adversely have an effect on fertiliser availability in India, whilst scenario until February-end was comfy, the Finance Ministry mentioned, in its Monthly Economic Report for February launched on Tuesday. Oil value motion within the coming months will dominate the inflation pattern, and the latest spikes in costs, if sustained, will submit downward dangers to development estimates, it mentioned.

The Ministry, nonetheless, projected that the worldwide commodity costs are anticipated to “level off” early with enhance in provides outdoors the disaster zone, particularly given the inherently unsustainable nature of the latest spike in costs. From a peak of round $139 per barrel recorded simply final week, worldwide Brent oil futures fell beneath $100 per barrel in early trades on Tuesday — reflecting that the inherent volatility in costs stays excessive.

As India’s dependence on imported fertilisers is kind of excessive and muriate of potash (MOP) is a nutrient that’s absolutely imported, excessive international costs could have a direct affect. “Fertilizer is a critical input to sowing and harvesting. As on 24th February 2022, the fertiliser availability is in a comfortable position. However, the ongoing geopolitical tensions can have an adverse impact on fertiliser availability as India is highly dependent on Russia and Belarus for fertiliser/raw material imports,” the ministry report mentioned.

Russia and Belarus are the world’s No. 2 and No. 3 producers of MOP fertiliser, at 13.8 mt and 12.2 mt in 2020, respectively. Out of the whole 5.09 mt that was imported in India in 2020-21, practically a 3rd got here from Belarus (0.92 mt) and Russia (0.71 mt). International costs of different fertilisers (urea, di-ammonium phosphate and complexes) and their uncooked supplies/intermediates, have additionally gone up sharply in latest weeks.

The report famous that rabi acreage has additionally not been impacted by tractor gross sales in 2021-22 (April-February) being 5.5 per cent decrease over the corresponding interval final yr signalling ample provide of tractors.

Volatility in international commodity costs are but to affect the expansion evaluation.

“Its impact on India’s activity level in March, if any, can be assessed only a month later, when high frequency data becomes available. However, with the activity levels in February not dampening, it is unlikely that actual GDP prints of 2021-22 will be different from the levels indicated in the second advance estimates. The geo-political crisis is still evolving and these are early days to make a plausible forecast of its impact on India’s economy in the year ahead,” the report mentioned.

“Given the inherently unsustainable nature of high prices, international commodity prices are expected to level off early with increase in supplies outside the crisis zone. However, the impact on growth, inflation, current account and fiscal deficits will depend on the persistence of commodities prices at elevated levels,” it mentioned.

Consumer Price Index-based inflation or retail inflation for the month of February 2022 rose to six.07 per cent from 6 per cent in January 2022. However, for April-February interval as a complete, retail inflation averaged 5.4 per cent, throughout 2021-22 (AprilFebruary), round 80 foundation factors decrease than 6.2 per cent obtained within the corresponding interval of final yr, it mentioned.

Wholesale Price Index (WPI) based mostly inflation, after remaining benign at 0.7 per cent throughout the April-February interval of 2020-21, noticed a pointy uptick within the corresponding interval of 2021-22 to 12.7 per cent. “A part of the observed rise in wholesale inflation in 2021-22 (April-February) is attributed to the low base in the previous year. As the base effect fades, WPI inflation is expected to moderate, being limited to sequential growth of the index,” the report mentioned. It is crucial to observe the results of this imported inflation and its multi-round results on the home worth chain, it mentioned.