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New Delhi, July 9 (IANS): The Finance Ministry has cautioned of inflationary risks to the economy due to global demand-driven recovery in commodity prices and high input cost.
The Monthly Economic Review for June 2021 released by the Department of Economic Affairs (DEA) noted that inflationary pressures took an upturn in May 2021 with headline inflation (CPI-C) and WPI inflation touching a high of 6.3 percent and 12.94 per cent, respectively.
Supply side disruptions in states and unfavourable base effects drove the broad-based momentum in retail inflation across food, fuel and core categories. On the other hand, electricity and manufactured products inflation led the uptick in wholesale inflation.
Healthy monsoon coverage, gradually rising Kharif sowing and unlocking of states is expected to ease food, and thereby headline, inflation, it said.
"However, risks due to global demand-led recovery in commodity prices and input cost pressures remain," it said.
As the Indian economy struggles to shed the impact of the second wave of Covid-19, the report suggested that maintaining a fast past of vaccination and plugging the lags in the healthcare infrastructure in the country would be the most sustainable stimulus for the durable recovery of the Indian economy.
Resilient tax collections of the Central government in the first two months of FY 2020-21 and sustained momentum in capital expenditure, particularly in the road and rail sector, augurs well for continued economic recovery driven by capital expenditures, it said.
The recently announced economic relief package is expected to further oil the wheels of the capex cycle via implementation of the PLI scheme and streamlining of processes for PPP Projects and Asset Monetisation, the review said.
Consumption sentiment is expected to pick up with further enhancement of employment support under the Aatma Nirbhar Bharat Rozgar Yojana (ANBRY), targeted support to the urban poor through the credit guarantee scheme for on-lending by micro-finance institutions, and wider Bharat-Net digitisation coverage.
Free food-grain and enhanced fertiliser subsidies under the package along with continued MGNREGA implementation, on the other hand, would serve as a cushion for rural demand in the coming quarters, the review said.
Finance Minister Nirmala Sitharaman has said that in India, fiscal policy measures are being taken to get better environmental outcomes.
In her address at the G20 High-Level Tax Symposium on Tax Policy and Climate Change, ahead of the third G20 Finance Ministers & Central Bank Governors Meeting, she also said that concessional tax rates are in place in India to promote use of renewables.
In a series of tweets, the Ministry of Finance said that the minister shared India's innovative policy mix for better environmental outcomes such as new energy map of India, digital innovation and emerging fuels, international solar alliance for enabling clean energy, and promotion of energy efficiency and afforestation.
Sitharaman also emphasised on the role of technology in fighting climate change and called for international cooperation to increase supply of alternative sources of energy and technologies for adaptation.
The third meeting of G20 Finance Ministers and Central Bank Governors is scheduled on July 9 and 10, under the Italian G20 presidency. This will be the first in-person Finance Track meeting since February 2020.