There is good news for Indian policymakers, especially those from the Reserve Bank of India (RBI), as Business Inflation Expectations Survey (BIES) of the Indian Institute of Management-Ahmedabad (IIM-A) has shown that one-year ahead inflation expectations among Indian companies have declined in February. According to the survey, one-year ahead inflation expectations of Indian companies decreased by 26 basis points, from 4.79 percent in January to 4.53 percent, which could signal that the effects of inflation may be on the decline.
The survey was led by Abhiman Das, professor of economics at IIM-A and was conducted by questioning around 1000 companies. The responses from the companies were received in the second half of March 2021. The survey also showed that companies reported ‘much less than normal’ sales and profit margins have worsened, possibly signaling the presence of an economic slowdown.
The results of the survey will be keenly eyed by the RBI, which has just begun its three-day Monetary Policy Committee (MPC) meeting on April 3. The MPC is expected to hike the repo rate at 25 basis points to 6.75 percent, having raised it by 250 basis points in the year 2022-23 to fight elevated inflation.
Policymakers are focusing on anchoring inflation expectations as it would help to ensure price stability. CPI inflation has already been showing signs of rearing up and the last two months spent above the tolerance range of the RBI’s 2-6 percent. Knowing these facts, BIES asked respondents their estimates for the Consumer Price Index (CPI) inflation one year down the line, with the survey showing a marginal 3-basis-point increase to 4.94 percent in February compared to December.
The Indian Institute of Management-Ahmedabad (IIM-A) is one of the most prestigious and oldest business schools in India. It was established in 1961 by the first Prime Minister of India, Jawaharlal Nehru and its alumni includes several eminent figures in the Indian business world. The Institute also focuses on research and training in the field of management, public policy, and social development in an effort to bridge the gap between industry and Academia.
Abhiman Das is a professor of economics at IIM-A and is the main authority responsible for conducting the inflation expectation survey. He has a long list of research designations and has published numerous articles in renowned academic journals across the world. His primary research interests include heterodox economics, economic history, and economic development.