WPI to remain in 12-13% range and CPI above 6%: Madan Sabnavis

What are you expecting as far as inflation is concerned both on the WPI as well as CPI front?
We are looking at a number of around 12.3% which is definitely on a higher side and this has been the trade which we have seen during the course of the year. Even in terms of CPI, we are looking at a number of above 6% – around 6.2-6.3%. We have seen inflation tending to become more generalised. It is not just a fuel component. We have also seen the food component going up primarily on account of what is happening on the oil front.

In terms of manufacturing products also, we have seen that producers have started passing on input cost to the consumer and that is why generalised inflation is something which is here to stay and while for certain months, there could be a temporary relief on account of base effects, in general, the real purchasing power of consumers is going to get dented towards severe extent in the coming months.

In the last few days, a lot of economists have cut down the GDP estimates. We have seen the likes of Citi cut it down by quite a significant number. Are we now entering the stagflation zone where inflation will trend higher and GDP estimates will be cut down further?
We should be a bit clear about the concept of stagflation which has been spoken about. Stagflation is when we have negative growth and I think we had that during the lockdown. We are definitely not in that kind of a situation now. There could be a bit of a slowdown in growth on account of higher inflation. The new financial year has now started. While inflation remains elevated, which I believe would be the case for 2022-2023 with CPI more like to be in the 5.5%-6% range compared to 4.5% which the RBI has taken to be its forecast, there would definitely be a case of consumption getting affected as the purchasing power comes down and the worst case scenario which we are looking could probably shave off around 25 bps in growth.

So earlier we had a forecast of 7.75 to 8%. If one has to come into a forecast this prematurely, we would say it would be 7.5% to 7.75%. It is going to be more because of the inflation impact rather than the direct impact because we are a domestic economy and everything is driven by domestic forces. It was also not very significant and definitely trade with both Ukraine and Russia are very much limited compared to the rest of the geography. I would think that inflation would not impact growth more than 0.25%.

Considering inflation the way oil prices are, various other prices are how is it different from the last 10 years considering our forex reserve, considering the sort of changes we have done on corporate policy, investment policies, tax rate reduction, how do you see all of this in the context of the current global issues?
The Indian economy is definitely positioned in a far superior position than what was in the past and as you have rightly mentioned, the fundamentals of the economy appear to be strong, especially if one looks at external side because the major shock one is looking at are commodity prices increasing not just through oil but also through other products which is edible oils and ferrous metals which are creating problems for us and would be stroking up the current account deficit.

But given the quantum of forex reserves we have today, we are definitely in a more comfortable position. At the same time, that does not mean that we do not have to do anything because we have also seen the stock markets being driven by the FPIs or more in a withdrawal mode.

In fact, they were in a withdrawal mode even before the war started because ever since we spoke of the Federal Reserve increasing rates, the interest in emerging markets has dwindled and there has been considerable volatility up there. But in terms of the overall external position while definitely the RBI would be keeping a keen eye on seeing how the balance of payments evolves and what happens to the currency, support is already being shown by the RBI through this swap auction which they had last week.

We are in a better position up there but as far as the domestic economy is concerned, the problems which we had earlier on consumption still remain. The government’s budget points towards higher investment taking place but consumption, jobs are perennial issues which have been there in pre pandemic days also.

But in terms of the impact of the war and the war like conditions which we have on India’s overall GDP, it would be a bit more muted than what it would have been in the earlier years because the government’s policies have been very effective.

A lot of things are being done under the atmanirbhar umbrella for the last couple of years. The PLI in particular is very progressive. Lots of things are happening to the corporate sector, something which has gotten reflected also in the corporate results. There are good things happening for us to feel relatively comfortable though this should not give way to complacency induced inflation.

WPI inflation is at 13.1%. Considering what is happening to the global prices, is it only going to inch higher?
It will remain in this particular range. The base effect is going to drive the number a little bit above or below but 12-13% will be the kind of range which we will be seeing. We should also remember the fact that we have not yet increased the domestic prices for petrol and diesel. But the direct impact which is coming through both in terms of the rupee depreciation as well as international commodities going up will continue to affect the manufactured inflation for some more time.

The fact that companies had started a bit late to pass on the higher input cost to the final product consumer is something which is in motion right and there could be a second round which could be happening in the course of next year. We should be prepared for double digit WPI inflation for some more time.