But downside risks from price pressure still persist, keeping both the Indian government and the central bank on “high alert”, the ministry said in its monthly economic report for October, even as it acknowledged the moderation in October retail inflation to a four-month low of 4.87%, or within the targeted band of 2-6%.
The ministry also said the drop in global crude oil prices and continued easing of core inflation will likely control price pressures going forward.
It said India can look forward to a longer economic and financial cycle over the medium term than in the past, thanks to the sustained focus on public investment in infrastructure and advances in digital public infrastructure. However, external headwinds could threaten these projections.
“Financial flows in the external sector also need constant monitoring as they impact the value of rupee and the balance of payments. A fuller transmission of the monetary policy may also temper domestic demand,” it said.
Against a cumulative hike of 250 basis points (bps) in policy repo rate since May 2022 to 6.5%, lending rates have increased by 187 bps in respect of fresh loans and 105 bps in respect of outstanding loans, the report said.On balance, however, India’s growth in FY24 “should continue to be a positive outlier as compared to other major economies”, it added.The supply-side economy in FY24 so far vindicates the confidence, while on the demand side, private final consumption expenditure has emerged as the strongest driver of India’s growth so far in FY24.
Rural demand has sustained sequential momentum in the second quarter of FY24 as incomes from grain production have been stable and inflationary pressures moderate, the report said.
Simultaneously, increasing production and expansion in sales have been driving growth in manufacturing. Services activity, too, has been expanding, driven by favourable demand conditions and a strong influx of new businesses.
Despite rising input costs, sentiments in the services sector remain upbeat, driven partly by an upswing in the tourism and hotel industry.
The Central government is “on track” to achieve the budgeted fiscal deficit target of 5.9% of GDP for FY24 as well, supported by continued buoyancy in revenue collections and prudent expenditure management, it said.
The government’s emphasis on capital expenditure has continued during the year as well, imparting an impetus to private investment.
Meanwhile, the festive season has further bolstered consumption demand. “While accumulated savings and declining rates of unemployment constitute the underlying strength of consumption demand, the wealth effect emanating from rising real estate prices and growing capitalisation of equity markets may have also strengthened consumption,” the report said.
Merchandise exports during October have also surprised on the upside, with its growth highest in 11 months. Services exports, too, continued to remain strong in October.
Foreign Portfolio Investors (FPIs), which were net sellers in October, have turned into net buyers in the first half of November, the report said.
