Finance Ministry exuded confidence that the country will achieve 6.5% growth in FY24 on the back of improved corporate profitability, private capital formation and bank credit growth, notwithstanding the risks of rising crude oil prices and monsoon deficit.
The run-up in global crude oil prices is a concern for the Indian economy but doesn’t yet warrant ringing alarm bells, and prices of some foods items that had spurred inflation over 7% in July are “on the retreat” while others like Tur Dal will ease once imports hit the market, the Finance Ministry said on September 22.
Apart from “steadily climbing” oil prices, the ministry identified the monsoon deficit which could impact both Kharif and Rabi crops, as another risk to the economic outlook, and termed a likely stock market dip “in the wake of an overdue global stock market correction” an “ever-present” risk.
The economic outlook remains bright and on track for a “baseline estimate” of 6.5% real GDP growth this year, the ministry’s monthly economic review for August said. It stressed that the “momentum of economic activity” from the first quarter, when GDP grew 7.8%, has “been carried forward” into the second quarter and there are “incipient signs of a new private sector formation cycle”.
The review cited high frequency indicators such as the record e-way bills generation under the GST regime and electronic toll collections in August as signals of healthy economic activity, and pointed to a 4.2% uptick in capital goods imports in the first quarter to suggest that higher public capital spending has begun to crowd in private investment.
“Private sector is in good health as data on advance tax payments for second quarter confirm,” the review revealed, adding that businesses are investing.
“The US 10-year bond yield has crossed 4.3%, and the S&P 500 index is not too far from its all-time high. The risks of a stock market correction and geopolitical developments could potentially hurt investment sentiment in the second half of the financial year. But, the impact of these developments on underlying economic activity in India should be relatively contained,” the review averred.
While the ministry admitted that the monsoon deficit in August could impact both Kharif and Rabi crop and that impact needs to be assessed, it termed September’s rains “heartening” for they have erased a part of the deficit in this monsoon.
On inflation, the review noted that food inflation remains high in many major economies but appeared sanguine about domestic prospects. Retail price rise eased in August with food inflation easing to 9.9% due to the targeted government interventions for specific crops.
“During April-August 2023, the average inflation was 5.6%, which is within the RBI [Reserve Bank of India] tolerance limit. Core (non-food, non-fuel) inflation moderated to 4.86% in August, which is the lowest in the last 40 months. Also, it has declined for the last three consecutive months,” the review highlighted.