Domestic demand, investment to drive growth, says Economic Review

However, negative cross-border spillovers and adverse global developments can act as a deterrent to achieving the potential high-growth path in the current financial year, the report added.

The Economic Review released by the finance ministry’s department of economic affairs (DEA) said that the government’s emphasis on capital expenditure in recent years has given a much-needed thrust to investments in key infrastructure, resulting in crowding in of private investment to kick-start job creation, income, productivity, demand and exports.

These will be supported by favourable demographic dividends over the coming years, it said.

However, the latest monthly review cautioned that higher commodity prices could mean further monetary tightening in the developed world, which will impact the monetary policy trajectory in developing countries due to currency and capital flow effects.

“In sum, India’s improved monsoon performance, solid fiscal performance, continued expansion in manufacturing and services sectors, vigorous capital expenditure spending by the public and private sectors augurs quite well for India’s macroeconomic stability and growth in FY24," it said.

“But the price of such stability and growth is eternal policy vigilance," it added.

Going forward, India’s domestic fundamentals remain strong, the publication said.

“Real GDP growth data for the last quarter of FY23 reaffirmed the ability of the Indian economy to grow on the strength of its domestic demand and investment despite a rise in global uncertainties and moderation in global output," it said.

“Growth momentum gathered in this quarter is likely to be sustained in the June 2023 quarter, as reflected in the performance of various high frequency indicators (HFIs), including GST collections, PMI, services exports, electronic toll collection, e-way bills etc," it added.

The Economic Review also expects private consumption to improve with the decline in inflationary pressures.

“CPI (consumer price index) inflation has witnessed a moderation in recent months, with a pass-through of WPI (wholesale price) inflation getting increasingly reflected. CPI core inflation, which is generally considered a better guide to the direction of future inflation, has also remained below the 6% mark for four consecutive months," it said.

Morgan Stanley said on Wednesday it expects India’s retail inflation to leap to 6.2% at the end of the quarter ending September, against its previous forecast of 5.5%, due to higher prices of food.

However, the consumer price index is expected to moderate to 5-6% in the second half of FY24, according to its estimates.