After the twin shocks of a cash ban in 2016 and the chaotic introduction of a consumption tax last year, India’s economic recovery is gaining momentum. Businesses are taking advantage of the solid demand to raise prices, lifting profits, but also fanning inflation at a time of higher oil prices and a currency slump.
More than 1,200 manufacturing firms -- both small and large -- polled by the Reserve Bank of India reported input price pressures and an increase in selling prices. The central bank raised interest rate twice since June to the highest in two years to curb price pressures and support the rupee amid a sell- off in emerging market currencies.
The stronger growth outlook has underpinned a 13% gain this year in India’s benchmark S&P BSE Sensex Index to a record high, making it Asia’s best-performer.
“There is a sense that the economy has come out of the difficult phase,” Harsh Pant, a professor of international relations at King’s College in London, said, referring to the pick-up in manufacturing activity as consumer confidence improves. The decision of companies to raise prices “seem to be reflecting this underlying reality,” he said.