fast reaching normal levels. even the automobile industry has recorded recovery across all segments. the labour market is strengthening, but mostly in manufacturing. although india ’ s merchandise exports have stayed above us $ 30 billion over the past 15 months, there has been a moderation in pace in may 2022, reflecting the renewed supply chain disruptions in the wake of the war. yet, bucking the global decline, india registered robust growth in manufacturing export orders. import growth is broad - based, taking the trade deficit to its highest monthly level in may 2022, but this is an indication that the recovery in domestic economic activity is gathering strength. seen in the broader context of balance of payments – which is a summary record of all of india ’ s external transactions – the decline in india ’ s current account deficit ( cad ) to 1. 5 per cent of gdp in the fourth quarter from 2. 6 per cent in the third quarter of 2021 - 22 augurs well for india ’ s external viability as it is backed by strong merchandise export performance, rising net earnings from computer and business services and a rejuvenation of remittances by overseas indians from pandemic lows. on an annual basis, therefore, the cad turned out to be a modest 1. 2 per cent of gdp in 2021 - 22, with the intrinsic strength of india ’ s foreign exchange earnings mitigating the terms of trade shocks imposed by geopolitical spillovers and the surge in import demand. with foodgrains production touching a record level for the sixth consecutive year in 2021 - 22, food security has been bolstered amidst widespread global shortages. as of may 31, 2022 the stock of rice and wheat stood at 3. 7 and 4. 2 times the quarterly buffer norms. minimum support prices ( msp ) for 14 major kharif crops for the marketing season of 2022 - 23 have been announced, but upward revisions have been modest, averaging 6. 1 per cent, which is a positive for the inflation outlook. in the industrial sector, the headline manufacturing purchasing managers ’ index ( pmi ) maintained its improvement in may 2022, turning out to be among the highest in the world. while the expansion was led by an increase in factory orders and sales, the increase in input cost pressures remains a point of concern. the pmi services accelerated in may 2022, marking a solid recovery. the business expectations index ( bei ) for services expanded for the tenth successive month, but

it was also accompanied by large increases in input prices. headline cpi inflation moderated to 7. 0 per cent in may 2022 from 7. 8 per cent in april, with the easing observed across the board. core inflation fell sharply to 5. 9 per cent in may from 7. 1 per cent in april. for june so far, cereals prices have increased but pulses and edible oil prices have registered a decline. with inflationary pressures from global commodity prices, a number of steps have been taken on the supply side to ease domestic prices. the latest round of the inflation expectations survey ( ies ) of the reserve bank incorporated an extension survey of urban households undertaken after the excise duty cuts on petrol and diesel and the results show a significant moderation in their inflation expectations post the excise duty cut. the role of monetary policy it will be remiss of me not to speak about the role of monetary policy in the context of geopolitical spillovers. as a backdrop, it is perhaps useful to summarise the monetary policy actions and stance adopted in 2022 - 23 so far. starting in april and up to june, monetary policy has effectively tightened by 130 basis points, which is fully reflected in the movement of the overnight weighted average call money rate, the operating target of monetary policy. the stance of monetary policy has shifted from being ‘ accommodative as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of covid - 19 on the economy while ensuring that inflation remains within the target going forward ’ to ‘ withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth. ’ with headline inflation having moved up by 80 bps in april but reverting by almost the same magnitude in may, the rbi has surged ahead of the curve. in fact, the question that the now blind - sided are asking is : with prices of food and fuel driving up inflation everywhere and in india as well, how will increases in the policy rate help? this issue has been addressed in some detail in the state of the economy article, but i will draw out the essence of its argumentation. the initial shock from food and fuel prices to inflation lies outside the domain of the rbi. be that as it may, the policy challenge is that food and fuel prices constitute 55 per cent of the cpi and the food shock emanates from external sources, in this case, the war in europe. the