New Delhi: India is expected to end FY24 with strong growth and macroeconomic stability, although inflation and the impact of external factors on the rupee could pose risks, the finance ministry said in its latest monthly economic review released on Tuesday.
In its economic review for October, the ministry said a fuller transmission of the monetary policy may also temper domestic demand, although the review noted India’s growth in FY24 should continue to be a positive outlier compared to other major economies.
At its latest rate-setting bi-monthly meeting in October, the Reserve Bank of India (RBI) kept the repo rate unchanged for the fourth consecutive time at 6.5%.
A higher repo rate makes debt and debt-servicing more expensive, thus slowing down economic activity.
The rupee has depreciated 1.81% against the dollar in the last 12 months, making foreign currency borrowings and imports more expensive.
The latest economic review said policy measures by the government and the transmission of monetary policy tightening has helped rein in inflation.
“Inflationary pressures have also moderated. Consumer price index (CPI) declined in October 2023, mainly due to the dip in core (non-food, non-fuel) inflation,” the review said.
“The trend in Wholesale Price Index (WPI) also suggests that the cost of principal inputs to production in the economy has declined overall.”
Retail inflation fell to a four-month low of 4.87% in October as food prices and core inflation eased, thus remaining within the RBI’s comfort zone of 2-6% for the second consecutive month.
Meanwhile, wholesale inflation stayed in the deflationary zone at -0.52% in October as prices eased across food, electricity and textiles.
“On balance, however, India’s growth experience in FY24 will continue to be a positive outlier as compared to other major economies,” the review said.
“In the medium term, thanks to the sustained focus on public investment in infrastructure and advances in digital public infrastructure, India can look ahead to the prospect of a longer economic and financial cycle than in the past, subject to global factors,” it added.
“The central government is on track to achieve the budgeted deficit target for the current fiscal year as well,” the review said.
“The government’s emphasis on capital expenditure has continued during the year as well, imparting an impetus to private investment. The recent steep and rapid decline in global crude oil prices removes an important source of potential impact on public finances as well,” it added.
The government expects to maintain the fiscal deficit target of 5.9% of gross domestic product.
In September, Fitch Ratings retained its growth forecast for the current fiscal at 6.3%, saying the Indian economy continues to show resilience despite tighter monetary policy and export weaknesses. It also expects India to maintain 6.5% GDP growth until FY25.
S&P Global has predicted 6% GDP growth for FY24, citing a slowing world economy, rising risk of subnormal monsoons and the delayed effect of a rate hike. At the same time, it estimated 6-7.1% GDP growth during 2024-2026, calling India’s growth prospects “strong”.
In comparison, major global economies are expected to grow at a much slower pace. The United States, the world’s largest economy, is expected to grow at 2.1% annually during calendar year 2024, according to Goldman Sachs.
The International Monetary Fund (IMF) expects China, the world’s second largest economy, to grow at 4.6% during calendar year 2024.
Meanwhile, buoyant tax collections this year have created more fiscal space for spending. Tax collections are stronger than expected, with total government revenues expected to substantially exceed budgeted estimates amid increased economic activity.
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