The Finance Ministry’s report said that core inflation was declining steadily while food inflation has eased. People shop on the eve of Dussehra (Dasara) festival, in Bengaluru, Karnataka. File
| Photo Credit: Murali Kumar K

India will remain the fastest-growing major economy in the world in 2023-24 fiscal on the back of strong domestic fundamentals and benign inflation expectations, a Finance Ministry report said on October 23.

The September edition of the Monthly Economic Review also flagged that global uncertainties have been compounded by recent developments in the Persian Gulf and depending on how the situation develops, crude oil prices may push higher.

Further, the relentless supply of U.S. Treasuries and continued restrictive monetary policy in the U.S. (with further monetary policy tightening not ruled out) could cause financial conditions to be restrictive.

At current levels, U.S. stock markets have greater downside risk than upside. If the downside risk materialises, it will have spill over effects on other markets, the report said.

“Fraught geopolitical conditions can cause a general increase in global risk aversion. If these risks worsen and are sustained, they can affect economic activity in other countries, including India,” the Ministry said.

Also read: India’s statistical performance on the global stage

However, the report emphasised that India’s macroeconomic outlook for fiscal 2023-24 is bright and is solidly underpinned by strong domestic fundamentals. Alongside private consumption, investment demand is also firming up.

There are additional growth levers in broad-based industrial growth and buoyant residential property markets. Industrial capacity utilisation has improved.

Further, the report said improved reservoir levels augur well for the upcoming Rabi season. Core inflation is declining steadily while food inflation has eased.

The Ministry noted that with a lower trade deficit and a comfortable forex reserves position, India’s external account looks robust. Echoing all this, Reserve Bank of India’s forward looking surveys on manufacturing, consumer confidence, employment and inflation expectations have optimistic findings.

“In sum, as IMF projections also confirm, India will remain the fastest-growing major economy in the world in FY24,” the report said.

While keeping the global growth projection for FY24 unchanged at 3%, IMF revised its growth projection for India upwards by 20 basis points to 6.3% in October.

This shows the growing confidence of global analysts as well in India’s economic strength amidst global uncertainties and fresh geopolitical challenges, the Ministry said.

While domestic macro fundamentals are strong and improving, downside risks arise from global headwinds and uncertainties in weather conditions, it added.

The Finance Ministry’s report said that core inflation was declining steadily while food inflation has eased. People shop on the eve of Dussehra (Dasara) festival, in Bengaluru, Karnataka. File
| Photo Credit: Murali Kumar K

India will remain the fastest-growing major economy in the world in 2023-24 fiscal on the back of strong domestic fundamentals and benign inflation expectations, a Finance Ministry report said on October 23.

The September edition of the Monthly Economic Review also flagged that global uncertainties have been compounded by recent developments in the Persian Gulf and depending on how the situation develops, crude oil prices may push higher.

Further, the relentless supply of U.S. Treasuries and continued restrictive monetary policy in the U.S. (with further monetary policy tightening not ruled out) could cause financial conditions to be restrictive.

At current levels, U.S. stock markets have greater downside risk than upside. If the downside risk materialises, it will have spill over effects on other markets, the report said.

“Fraught geopolitical conditions can cause a general increase in global risk aversion. If these risks worsen and are sustained, they can affect economic activity in other countries, including India,” the Ministry said.

Also read: India’s statistical performance on the global stage

However, the report emphasised that India’s macroeconomic outlook for fiscal 2023-24 is bright and is solidly underpinned by strong domestic fundamentals. Alongside private consumption, investment demand is also firming up.

There are additional growth levers in broad-based industrial growth and buoyant residential property markets. Industrial capacity utilisation has improved.

Further, the report said improved reservoir levels augur well for the upcoming Rabi season. Core inflation is declining steadily while food inflation has eased.

The Ministry noted that with a lower trade deficit and a comfortable forex reserves position, India’s external account looks robust. Echoing all this, Reserve Bank of India’s forward looking surveys on manufacturing, consumer confidence, employment and inflation expectations have optimistic findings.

“In sum, as IMF projections also confirm, India will remain the fastest-growing major economy in the world in FY24,” the report said.

While keeping the global growth projection for FY24 unchanged at 3%, IMF revised its growth projection for India upwards by 20 basis points to 6.3% in October.

This shows the growing confidence of global analysts as well in India’s economic strength amidst global uncertainties and fresh geopolitical challenges, the Ministry said.

While domestic macro fundamentals are strong and improving, downside risks arise from global headwinds and uncertainties in weather conditions, it added.

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 Finance Ministry on September 22 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 ministry’s August edition of Monthly Economic Review said the 7.8% growth recorded in the first quarter (April-June) was on account of strong domestic demand, consumption and investment. The growth was also witnessed in various high-frequency indicators.

Flagging certain risks like steadily climbing crude oil prices in the global market, impact of monsoon deficit in August on Kharif and Rabi crops, the review said, “that needs to be assessed.” At the same time, it observed, the rains in September have erased a portion of the rainfall deficit at the end of August.

Furthermore, the review said, a stock market correction, in the wake of an overdue global stock market correction, is an ever present risk, and offsetting these risks are the bright spots of corporate profitability, private sector capital formation, bank credit growth and activity in the construction sector.

“In sum, we remain comfortable with our 6.5% real GDP growth estimate for FY24 with symmetric risks,” it said.

Observing that the strength of domestic investment is the result of the government’s continued emphasis on capital expenditure, the report said, measures implemented by the central government have also incentivised states to increase their capex spending.

The external demand has further complemented the domestic growth stimulus, it said, adding, the contribution of net exports to GDP growth has increased in Q1FY24, as services exports have performed well.

High Frequency Indicators (HFIs) for July/August 2023 reflect sustenance of growth momentum in Q2FY24, it said.

With regard to the banking sector, it said, a variety of indicators suggest increasing resilience of the sector through declining Non-Performing Assets (NPA), improving Capital to Risk-weighted Asset Ratio (CRAR), rising Return on Assets (RoA) and Return on Equity (RoE) as of March 2023.

Similarly, as of March 2023, data for Non-Banking Finance Companies (NBFCs) indicated improvements in their profitability and risk-taking behaviour, it said.

Further, it said, as per the July 2023 estimates by the RBI, there has been a consistent and broad-based growth in the non-food bank credit of Scheduled Commercial Banks (SCBs) since April 2022.

On retail inflation, the report said, it decreased in August, with both core inflation and food inflation easing from the July figure.

The calibrated measures taken by the government, including adjustments in the duties of many critical inputs and monetary policy tightening, helped reduce core inflation to a 40-month low level. Globally, food inflation remains high in many major economies, it said.

In India, it said, consumer food price inflation eased to 9.9 per cent in August due to the government intervention with targeted measures for specific crops, including build-up of buffer, procurement from producing centres and subsidised distribution.

Representational image only.
| Photo Credit: Twitter/@FinMinIndia

“Stellar macroeconomic management in the midst of unprecedented global challenges has put India on a quicker recovery path than has been the case in other nations,” the Finance Ministry said in a report on July 6.

“Investments in supply-side infrastructure have raised the possibility of India enjoying sustained economic growth longer than it has been able to do in several decades,” Monthly Economic Review for May and Annual Review of 2023 said.

Also read: Editorial | Miles to go: On the state of the Indian economy

“India appears poised to sustain its growth in a more durable way than before,” the report said, “nonetheless, it is no time to rest on the laurels nor risk diluting the painstakingly and consciously achieved economic stability. If we are patient, the rising tide will lift all boats as it has begun to.”

The report said that despite unprecedented global challenges in the last few years coming on top of balance sheet troubles in Indian banking and non-financial corporate sectors, “macroeconomic management has been stellar. It contributed significantly to enhancing India’s macroeconomic stability and set India on a quicker recovery path than has been the case in other nations.”

Observing that a critical cog in the wheel of economic growth in FY23 was the disciplined fiscal stance of the Central government, the report said, the year ended with a lower fiscal deficit (as per cent of GDP) compared to the previous year.

“Yet, the government could cut duties and increase welfare spending to alleviate stress from inflation,” it said, adding, the government could also maintain its enhanced provision for capital expenditure, which is now leading to the crowding-in of private investment.

The report highlighted that the Indian economy has carried the momentum from FY23 into the current fiscal year and high frequency indicators paint a healthy picture of the state of the economy.

Urban demand conditions remain resilient, with higher growth in auto sales, fuel consumption and UPI transactions, it said, adding, rural demand is also on its path to recovery, with robust growth in two- and three-wheelers sales.

“Goods and Services tax collection, Purchasing Managers’ Index (PMI) for the manufacturing and services sector continues to expand,” it said.

On the global front, it said, the uptick in economic activity during the first quarter of 2023 has also continued in the second quarter, as evident in the expansion of the global Composite PMI.

“However, factors that can constrain the pace of growth include escalation of geopolitical stress, enhanced volatility in global financial systems, sharp price correction in global stock markets, a high magnitude of El-Nino impact and modest trade activity and FDI inflows owing to frail global demand.

“Should these developments deepen and dampen growth in the subsequent quarters, the external sector may challenge India’s growth outlook for FY24,” it said.

Talking about the more-than-expected GDP estimate for 2022-23, the report said a strong final quarter performance pushed the GDP growth for the full year to 7.2%, higher than the 7% estimated in February.

“The country’s impressive growth experience in FY23, when the world economy was rocked by inflation and restrained by monetary tightening, is a narrative on what works or does not work for the Indian economy,” it said, adding, what clearly works for India’s economy is the strength of its domestic demand.

“The pandemic had struck at its roots to cause an unprecedented contraction of output in FY21, but domestic demand has recovered since then and moved from strength to strength in FY23,” it said.