By:

Abhijit Mulye

21 August 2024 at 11:29:11 am

RBI forced to rethink inflation, growth

Mumbai: The undeniable reality of climate change is rapidly transitioning from an ecological warning to a severe economic crisis in India. Global warming is no longer just altering natural ecosystems; it is fundamentally rewriting the rules of the nation's macroeconomic stability. A stark illustration of this shift comes from the HSBC report published on Monday, which highlights how rising surface temperatures and the looming threat of El Niño are directly forcing the Reserve Bank of India to...

min read

Mumbai: The undeniable reality of climate change is rapidly transitioning from an ecological warning to a severe economic crisis in India. Global warming is no longer just altering natural ecosystems; it is fundamentally rewriting the rules of the nation's macroeconomic stability. A stark illustration of this shift comes from the HSBC report published on Monday, which highlights how rising surface temperatures and the looming threat of El Niño are directly forcing the Reserve Bank of India to reconsider its monetary policy, proving that climate shocks are now dictating everyday financial realities. For decades, economists and policymakers have anxiously tracked the Indian monsoon, relying on rain gauges and reservoir levels to forecast agricultural output and inflation. However, HSBC’s analysis reveals a startling paradigm shift: tracking rising temperatures has now become a far more accurate method for predicting food inflation than observing traditional rainfall patterns. As average surface temperatures breach historical thresholds, the sensitivity of food prices to extreme heat has increased dramatically. During El Niño years, the probability of severe temperature spikes is now significantly higher than the chances of a rainfall deficit. These intensifying spikes mean the thermometer has become a far more vital forecasting tool for the central bank than the rain gauge. The effects of this warming planet are cascading through various walks of life, starting at the very roots of the agricultural sector. Intense and frequent heatwaves are no longer just wilting delicate, perishable crops like fruits and vegetables, which have traditionally been highly vulnerable to sudden temperature fluctuations. The soaring mercury is now directly threatening the resilience of durable staple crops, including cereals, pulses, oilseeds, and sugar. When these crucial crops fail to withstand the intensifying heat, the immediate fallout is a sharp surge in food prices. While robust granaries might offer a temporary buffer, the overarching trend points to persistent agricultural distress, threatening food security and pushing the financial burden directly onto the plates of ordinary citizens. Complex Web This climate-induced disruption is creating a complex web of challenges for the national economy. The HSBC report predicts that the combination of El Niño-driven temperature shocks and global energy pressures could push headline inflation to an average of 5.6 percent in the 2026-27 financial year. This overlapping environmental and economic crisis leaves the Reserve Bank of India in a precarious position. To combat the inflationary heat, the central bank is projected to deliver two interest rate hikes between late 2026 and early 2027, ultimately pushing the repo rate to 5.75 percent. However, the central bank must tread carefully, as these relentless climate shocks are simultaneously dragging down the nation's economic momentum, with GDP growth projections downgraded from a robust 7.4 percent to a sluggish 6 percent. Ultimately, the heaviest toll of this shifting climate is borne by the most vulnerable segments of society. The intersection of severe weather events, rising food costs, and tightening economic policies strikes hardest at the informal sector. Rural households, small agricultural businesses, and daily wage earners find their livelihoods increasingly squeezed by extreme weather forces entirely out of their control. The warming climate is fundamentally changing the drivers of India’s economic growth, turning environmental predictability into a luxury of the past. As policymakers grapple with these twin shocks of heat and inflation, it is evident that climate change has firmly rooted itself in every facet of Indian life.

All eyes on your gold now

Quaid Najmi
3 hours ago
4 min read

Mumbai: As Prime Minister Narendra Modi called upon citizens to embrace austerity and voluntarily refrain from purchasing gold for at least a year, a nationwide furor erupted over India’s deep emotional, cultural and economic relationship with the precious, glittering yellow metal.

The PM’s innocuous appeal for frugality quickly snowballed into a larger debate on the staggering quantity of gold lying idle in Indian households, estimated at over 35,000 tonnes.

The PM’s remarks rattled all – from the households to the stock and jewellery markets, coming at a particularly sensitive juncture - the peak summer wedding season, when gold purchases traditionally surge across the country.

While cautiously backing the larger national interests, industry leaders also sounded alarm bells over the possible economic fallout for millions dependent on the trade.

Indian Bullion & Jewellery Association (IBJA) national spokesperson Kumar Jain said the PM’s statement had struck at the very heart of Indian social and cultural traditions.

“Indians treasure their gold. It is more than an ornament or investment, spells a security handed down through generations in families. Official estimates suggest more than 35,000 tonnes of gold and jewellery are lying in homes and bank lockers in India,” Jain said.

However, he warned clearly that any abrupt decline in gold demand could severely hit the livelihoods of nearly three-crore workers, designers and artisans, employed in the sprawling jewellery ecosystem of large showrooms to tiny family-run businesses.

“In Mumbai alone, nearly 55 to 60 lakh workers depend directly or indirectly on the jewellery trade. If people suddenly stop buying gold, the impact on employment may be devastating,” Jain told ‘The Perfect Voice’.

Wide Speculation

The timing of the appeal triggered speculation over the state of the economy and India’s foreign exchange reserves. India imports nearly 700-800 tonnes of gold annually, exerting constant pressure on the Current Account Deficit (CAD). With gold prices soaring to nearly Rs 1.50 lakh per 10 grams, the yellow metal has already slipped beyond the reach of most ordinary Indians.

Nevertheless, several trade bodies nodded and even proposed an alternative route: monetising the massive dormant gold stockpile already available in homes of Indians.

Gem & Jewellery Export Promotion Council (GJEPC) Chairman Kirit Bhansali said the industry understood the compulsions behind the appeal given the volatile global economic climate.

“We fully respect the government’s concerns and the larger national interest. The industry has survived difficult periods in the past - from the Gold Control Act to the 80:20 import rule - and adapted successfully. We will work with all stakeholders to arrive at practical and balanced solutions,” Bhansali assured.

Household Gold

The All India Gem & Jewellery Domestic Council (GJC) went a step further, advocating an overhaul of the Gold Monetisation Scheme (GMS) to channel idle household gold into the formal economy.

GJC Chairman Rajesh Rokde said India’s economic strength must take precedence over consumer sentiment, particularly amid mounting import bills and pressure on forex reserves.

“India is already sitting on thousands of tonnes of unused gold. The answer may not lie only in curbing demand, but in unlocking the value of existing reserves through a transparent, regulated and jeweller-integrated GMS,” Rokde argued.

He said a robust GMS could reduce dependence on imports, improve transparency, formalise the sector and convert dormant wealth into productive national capital.

Echoing similar views, GJC Vice-Chairman Avinash Gupta said idle gold locked away in homes and lockers represented “dead capital” at a time when India urgently needed to strengthen its financial ecosystem.

However, outside the organised industry, the PM’s comments fuelled unease and sharp speculation. Pune-based businessman and RTI activist Prafful Sarda bluntly claimed the appeal could be a precursor to harsher measures ahead.

“It sounds like a danger sign of something more serious - possibly steep hikes in petrol, diesel and cooking gas prices, or even future attempts to regulate the enormous quantities of gold lying in temples and households,” Sarda told ‘The Perfect Voice’.

For millions of Indians, gold represents emotional attachments, insurance during emergencies, a social necessity during marriages, and a most fiercely held household savings for the middle-classes or rural homes. The PM’s plea also led to loud hiccups in the stock markets – the share prices of prominent listed gold companies fell between 8-11 pc today.

Opposition slams PM's austerity appeal

The Opposition on Monday hit out at Prime Minister Narendra Modi's appeal for public austerity amid the West Asia conflict, labelling it a "policy failure" and accusing the government of weakening the economy.

While Shiv Sena (UBT) leader Priyanka Chaturvedi alleged that the austerity measures were a result of election-focused governance, the NCP (SP) said that the BJP should "lead by example" before asking the public to curtail consumption and travel.

State Congress president Harshwardhan Sapkal alleged that the prime minister was preoccupied with "events, photoshoots and campaign rallies" while ordinary citizens were bearing the burden of hardship.

He accused the Modi government of weakening the economy in its pursuit of electoral victories, and now asking citizens to make sacrifices by reducing consumption of petrol and diesel, fertiliser and edible oil.

While other countries were preparing for possible global crises, the BJP was focused on elections, advertisements and "politics of hatred", he stated.

Referring to the COVID-19 pandemic, Sapkal alleged that the government had prioritised symbolic programmes even as people died due to shortages of oxygen.

He claimed that every ordinary citizen was now paying the price for what he described as the prime minister's negligence, arrogant governance and publicity-driven politics.

Shiv Sena UBT's Priyanka Chaturvedi termed the PM's appeal a "policy failure" of the Union government.

NCP (SP) national spokesperson Clyde Crasto said that the BJP should follow PM Modi's appeals before preaching to citizens.

In a statement, Crasto questioned whether the BJP governments and leaders would now prioritise work from home, reduce fuel consumption by cutting down on large convoys and using public transport, adopt "swadeshi" by giving up foreign-branded products, and refrain from foreign travel for a year.