Impact of global inflation must be resolved through a mix of tools: RP Gupta

With a strategic plan along with the right mix of fiscal, regulatory & monetary tools, India can certainly resolve the inflation and can also, avert any probable external risk.

During the COVID years, the total fiscal stimulus by various nations had exceeded $10.0 trillion, which expanded the money supply and caused global inflation, particularly, in the USA and other such developed nations. Russia and Ukraine war has disrupted the supply chain of essential commodities like energy & food, aggravating global inflation. India is also affected to the extent of importing commodities like energy and fertiliser. However, considering good diplomatic relations with Russia, the impact is somewhat diluted.  

So as to combat inflation, most of the developed nations have started hiking interest rates, which shall reduce consumption and cool down inflation to a large extent. In the sequel, global investors might transfer their investment from developing nations like India to their home nations for getting better returns. Further, forex reserves in India might decline thereby, weakening the rupee. This has been somewhat witnessed but so far, it’s within the comfort zone.  

Historically, India has been in a trade deficit (goods & services) and the accretion of forex reserves is highly dependent upon the inwards remittances by the Indian workers as well as the global investment in Indian equity & debt instruments. Actual FDI with management participation has not been so promising.  

Therefore, India can’t be complacent about the external sector. It must be ready with a strategic plan to mitigate any such probable external risk. In fact, the recent hike in repo rates by RBI is one of the steps to avert the outflow of global funds besides arresting inflation. However, the inflation in India is not due to a surge in demand and this action might be counter-productive to GDP growth, particularly, in realty, auto, and other core sectors. However, it shall be useful for arresting the outflow of global Rate this article: