India's food inflation is expected to decrease in the coming months, supported by the favourable harvests following the recent monsoon rains that have significantly improved water levels in the country's reservoirs, according to the monthly economic review report from the finance ministry released on Thursday.
As per the report, the steady progress of the southwest monsoon has been beneficial for summer-sown crops. The increased water levels in reservoirs are anticipated to positively impact the production of both the current kharif (summer-sown) crops and the upcoming rabi (winter-sown) crops. This improvement in agricultural conditions is expected to reduce food inflation in the near future.
"Replenishing water levels in reservoirs bodes well for the current kharif (summer-sown) and upcoming rabi (winter-sown) crop production. This will further aid in reducing food inflation in the coming months," the report said.
In July, the country's retail inflation fell to a nearly five-year low of 3.54 per cent, mainly due to a favourable base effect and decreased food prices from their previous highs. Food inflation, which constitutes roughly half of the overall retail inflation, eased to 5.42 per cent in July, down from 9.36 per cent in June.
Earlier this week, the central bank indicated that a more cautious approach to monetary policy might be necessary if elevated food prices persisted and posed a risk of broader inflationary pressures.
The ministry report also highlighted that stronger global demand had positively impacted India's goods exports. However, imports have also increased due to increased domestic demand. Consequently, India's goods trade deficit widened to $23.5 billion in July, exceeding economists' forecasts.
The Reserve Bank Of India has projected the CPI inflation for the fiscal year 2024-25 (FY25) at 4.5 per cent, and for the second quarter of FY25, the inflation is projected to be at 4.4 per cent.
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