Inflation to stay in target range, despite ongoing economic risks
In its monthly economic review for September, the Finance Ministry indicates a robust state of the Indian economy for the financial year 2023-24. Although the report acknowledges the presence of significant headwinds and new challenges arising from geopolitical factors and fluctuating crude oil prices, the outlook for the nation’s economic trajectory remains optimistic.
The report notes that inflation has steadied and remains within the upper tolerance limit set by the Reserve Bank of India (RBI) at 5 percent in September. Noting that the earlier inflation surge witnessed during July and August was largely temporary, primarily due to seasonal and weather-related disruptions affecting a few food items.
The report also highlights India’s GDP growth which continues to track as expected for FY24. While there was a temporary interruption in the declining trend of headline inflation in the second quarter, it has since moved towards stability, driven by corrections in vegetable prices and recent reductions in LPG prices.
There are promising developments in employment trends in India. The labour force participation rate is steadily improving, and the unemployment rate is on a declining trajectory, according to the Finance Ministry.
However, the report also cautions about unforeseen risks like the global economic outlook presents uncertainties, particularly exacerbated by recent developments in the Persian Gulf. Crude oil prices may experience upward pressure depending on evolving circumstances. The oversupply of US Treasuries, coupled with the potential for further monetary policy tightening in the US could lead to more restrictive financial conditions. As a result, US stock markets face downside risks. Heightened geopolitical tensions may elevate global risk aversion, which could, in turn, affect economic activity worldwide, including India.
The report maintains an optimistic outlook regarding India’s macroeconomic prospects for FY24. Strong domestic fundamentals underpin this optimism, with private consumption and investment demand gaining momentum. The country also benefits from growth drivers like broad-based industrial expansion and a thriving residential property market. Industrial capacity utilisation has notably improved.
A sluggish global demand has impacted India’s trade. However, the report anticipates recovery in the latter half of FY24.
The Reserve Bank of India (RBI) echoes these positive projections and reinforces them in their surveys related to manufacturing, consumer confidence, employment, and inflation expectations. Furthermore, in line with the International Monetary Fund’s projections, India is anticipated to maintain its status as the world’s fastest-growing major economy in FY24.
In summary, despite challenges posed by global uncertainties, India’s economy for the current fiscal year is on a promising trajectory. Strong domestic fundamentals and positive economic indicators position India as a standout performer in the global economic landscape.
