The Centre is worried about rising inflation accompanying the expected rebound in growth as the second wave of the coronavirus recedes and the states unlock themselves.

Principal economic adviser Sanjeev Sanyal on Thursday said rather than rushing in and announcing a bunch of new measures, it is more sensible to watch and act quickly based on the situation.

“We need to watch carefully what the data is saying rather than pre-judge how the economy will behave from here on,” Sanyal said at an event organised by the Merchant Chamber of Commerce.

“While we continue doing all the good things that were said in the budget and continue to support demand, we need to be very careful of the secondary impact of inflation,” Sanyal said.

“(Inflation is an) international problem already,” Sanyal said, citing record inflation in the US and other countries. US headline CPI inflation rose from 2.6 per cent in March to 5 per cent in May.

Retail inflation in May touched 6.2 per cent in India on account of high food and energy prices, in excess of the RBI’s upper tolerance band of 6 per cent.

The pandemic has resulted in a significant increase in health expenses and consumption of household non-durable goods. A surge in fuel prices has added to travel costs.

He added that there is another scenario of a differentiated recovery with some sectors showing growth. This requires a more targeted response than a universal one.

Another scenario could be a short-term bump in economic activity due to pent up demand which may not be sustainable. In that situation, the government has to provide support and will do what is necessary on the monetary and fiscal front.

“When you are dealing with high uncertainty, it is important to stress and acknowledge the uncertainty rather than what Friedrich Hayek (Nobelo winner) used to say to have a presence of knowledge. So, surveillance and situational awareness is more important than some false forecasting tool or model,” he said.

S&P forecast

S&P has scaled down the country’s growth forecast to 9.5 per cent this fiscal from the earlier 11 per cent with a warning that there was risk to the outlook from further waves of the coronavirus pandemic.