The Parliamentary Standing Committee on Finance will be meeting soon to discuss the evolving economic situation in the country amid the uncertainties due to the West Asia crisis.
Committee Chairman Bhartruhari Mahtab said: “Despite the serious headwinds, India’s economy is emerging in a better way. There are certain very good indicators where household savings also increased in comparison to last year.”
However, the challenge is that private investment is not picking up, even though government investment is increasing to spur the economic growth rate. This challenge has to be addressed, he added.
The committee has decided to meet again towards the third week of this month and will also prepare a report with recommendations to the government.
According to a Lok Sabha bulletin, the Standing Committee on Finance has chosen “Evolving Economic Conditions in the Country” as an additional subject for detailed examination during the year 2025-26.
Parliamentary committees select subjects that they have up to take up for discussion shortly after they are constituted. But they have the freedom to select additional subjects, keeping in mind evolving circumstances.
Meanwhile, the minutes of the RBI’s monetary policy committee meeting released on Friday show that India has been able to withstand the disruptions of the West Asia crisis because of the strong fundamentals of the economy.
MPC member Nagesh Kumar said: “The Indian economy entered the West Asia crisis with much stronger macroeconomic fundamentals than most previous economic crises (including the global financial crisis, the taper tantrum, or Covid-19). Before the conflict started at the end of February, the Indian economy was enjoying a ‘goldilocks moment’ of robust growth and very benign inflation.”
Emphasis on fiscal consolidation over the past years has helped in bringing down the fiscal deficit from 6.5 per cent of GDP in 2022-23 steadily to 4.4 per cent by 2025-26. This provides some fiscal space to address the challenges posed by the West Asia crisis, including through supporting economic growth by sustaining and even enhancing public investment to mitigate any weaknesses in private consumption due to rising costs and to absorb rising subsidies for absorbing the high crude prices.
The minutes further state that reservoirs holding above 20 per cent higher water levels than the 10-year average could help to mitigate the possible shortfalls in the monsoon. In any case, over time, Indian agriculture has tended to be less affected by monsoon fluctuations with growing resilience.
However, the RBI said the inflation outlook remains vulnerable to prolonged supply-chain disruptions arising from the conflict in West Asia and uncertainty over the spatial and temporal distribution of the southwest monsoon.
MPC member Prof. Ram Singh stated: “RBI’s analysis indicates a clear relationship between energy prices and domestic inflation: If crude oil prices are higher by 10 per cent than the baseline, assuming full pass-through to domestic product prices, inflation could turn out to be higher by around 50 bps. Inflated crude import bill expands our CAD.”
However, since the meeting took place, the US and Iran have signed a peace deal, which has resulted in a sharp decline in crude prices to around USD 75 a barrel, and this is expected to bring down inflation going ahead.
