India's Inflation May Fall To 2% In Next Six Months, Says HSBC Chief India Economist Bhandari

In next six months India's inflation may average at around 2% which is even lower than the Reserve Bank of India's target range of 4–6%, said Pranjul Bhandari, chief India and Indonesia economist, HSBC. Low inflation in perishable and non-perishable food items are supporting declining trajectory of inflation in India.

In April, India's consumer price index-based inflation declined to 3.16%, which is the lowest in nearly six years. It's lower than 3.34% in the previous month.

Prices of durable food items like wheat, rice, pulses have declined, which will help to replenish state granaries. Once India's food storage is filled up, it will help to cap inflation in next two-to-three years, Bhandari told NDTV Profit.

India's core inflation has slowed because of weak growth and a rebound in currency. A decline in commodity prices in international markets are also supporting low core inflation. Hence, Bhandari expects that core inflation will likely stay low for a while.

Declining price pressure will support RBI to keep monetary policy loose. HSBC is expecting three more rate cuts in the current rate cycle, Bhandari said. Liquidity will continue to get a boost from the central bank as well.

Low inflation increases real purchasing power, which is very important for informal sector, according to Bhandari.

Apart from above mentioned positive effects, low inflation will help in maintaining fiscal finances favourably, he said.

The government may choose to take up some money by not passing the entire effect of declining oil prices in the international markets. It will help the government in long-run to spend to boost growth, according to Bhandari. Hence, low inflation and low commodity prices can help India's GDP in a meaningful way.

(From right) HSBC Chief India & Indonesia Economist Pranjul Bhandari was speaking to NDTV Profit Editors Niraj Shah and Tamanna Inamdar at NDTV Profit show on Monday. 

RBI Dividend Helps Government Strengthen Macro Stability 

The dividend from the Reserve Bank of India is higher than budgeted; around Rs 2.3 lakh crore. It's also higher than what the Government of India received in financial year 2024, which was Rs 2.1 lakh crore, Bhandari said.

RBI will transfer Rs 2.69 lakh crore as dividend to the government, which is the highest ever surplus.

However, it's a little lower than what market investors were expecting. They were expecting around Rs 3 lakh crore. Nevertheless, it was a good number, Bhandari said.

India can now put more money aside to strengthen the risk buffer, which has now increased to 7.5% from 6.5%. At current times of global volatility, it is a good thing as macro stability has been established, he said.

Dividend is around 0.1–0.2% higher than budgeted, which basically means that the government can spend that much without running a higher fiscal deficit, Bhandari said.