The Finance Ministry has flagged geopolitical tensions and volatile global commodity prices, especially of petroleum products, as “substantial multi-frontal challenges” to the economy, but noted that positive indications for the farm sector from a normal monsoon should “firewall” India against such adverse pressures and also help food prices and retail inflation to ease.
While retail inflation touched an 11-month low of 4.83% in April, food inflation stood at 8.7%, the highest in four months. The ministry said the future inflation path would be shaped by several elements, including the upcoming rabi harvest that should cool wheat and chana prices, and the predicted normal monsoon, which should bolster food production.
Asserting that the economy closed 2023-24 “strongly” with growth “surpassing market expectations”, the ministry said in its economic review for April that “early indicators suggest a continuation of the momentum” in the first quarter of this year, with macroeconomic metrics such as employment, price stability and fiscal management improving in a “mutually reinforcing” manner.
Apart from improved farm output, the ministry also pointed to “macro-economic buffers nurtured and strengthened during the post-COVID management of the economy” as an enabler to help the economy navigate geopolitical tumult and turbulent global commodity prices “reasonably smoothly”.
The review asserted that investment activity remains expansive and consumption is being propelled by consistent growth in urban demand and a resurgence in rural demand. “For the first time in five quarters, rural fast moving consumer goods demand growth outpaced urban growth,” the ministry said about trends between January and March this year.
Arguing that industrial and service sectors were performing well, thanks to brisk domestic demand and “partially by tentative external demand”, the ministry said that domestic manufacturing would likely receive stronger external support in the upcoming months, with an “optimistic” outlook for merchandise exports.
“Modestly improved economic activity and consumer sentiment in Europe and a steady U.S. economy have aided India’s exports in April. There are reports that show that the number of organisations in the U.S. and Europe that are focusing on reindustrialisation has increased. The majority of these organisations are focussing on enhancing supply chain resilience. This can benefit India’s manufacturing firms as part of the China Plus One strategy,” the ministry noted.