Veggie prices will climb down, but crude prices remain a perennial headache: FinMin

Despite the retail inflation scenario being roiled by soaring vegetable prices in the past few weeks, the Union finance ministry expects the vegetable prices to climb down quickly, but is apprehensive of the impact that crude oil might have on the overall price front. With new harvest hitting the market, the veggie prices are likely to cool in September, but crude prices might play a spoiler despite now being well within the tolerable limit of $90 a barrel, finance ministry officials told news agency PTI.

Officials appeared to be relieved at the movement of the monsoon and said that a 6% deficit won’t have much of an impact to the kharif crops. Incidentally, monsoon had a late and uneven start this year and despite a bountiful July, August might turn out to be the driest month in more than a century, if the weatherman is to be believed. The Reserve Bank of India governor has been cautioning against disruptive effects on the economy and inflation due to El Nino.

But the vulnerability of the country’s economy to crude prices is structural since India imports about 85% of its crude requirements.

Despite cool crude prices, retail inflation reared its ugly head to 7.44% in July from 4.25% in May and 4.81% in June with vegetables contributing 200 basis points to the tally in July. To contain inflation the government has begun releasing wheat, rice and onion from its stocks. However, wholesale prices registered a contraction (-1.36%) in the fourth consecutive month in July.

Finance ministry officials also paid put to nascent expectations that the government might trim excise rates on petrol and diesel after bumper profits by the oil marketing companies over the past one years following a drop in crude prices from Russia. Retail prices of the two principal petro-fuels have remained steady for more than a year now despite the price of Indian crude basket going down dramatically.

Officials also pointed out that though the government is stepping up investment in infrastructure, private sector capital investment is lagging far behind. They forecast that capital investment by the government will reach 50% by the end of the current quarter. It was just about 28% by the end of the April-June quarter.

“Flexible trade policy has been adopted to keep prices down. We must remember that global food prices are very high due to the Ukraine war and the supply of food grains has been affected and that is a global factor from which India cannot remain isolated. We have taken measures to isolate out population and relative to others we are in a much better position,” the official said.

“This temporary high inflation is partly driven be vegetables. I expect vegetable prices will contract quickly, likely by next month,” said a key official of the finance ministry.

“Rising crude oil price is a concern but they are sill within a tolerable zone from the point of view of oil marketing companies. It doesn’t necessitate any policy adjustment right now. The budget calculations are on track. I think we are quite ok with oil at about $80-85, up to $90 we shouldn’t be worried. Beyond $90 it has an impact on inflation and other things,” he added.

Incidentally, globally crude oil prices are at about $85 a barrel. It was about $70-73 when the Union budget was presented.