Normal rains, stable food prices to firewall India, says finance ministry review

  • The latest economic review by the Finance Ministry's Department of Economic Affairs said while a normal monsoon will stabilise food prices, strong macroeconomic buffers will help the economy navigate the external headwinds smoothly

Rhik Kundu
First Published24 May 2024
According to government estimates, India is expected to report a GDP (gross domestic product) growth of at least 7.6% during FY24.
According to government estimates, India is expected to report a GDP (gross domestic product) growth of at least 7.6% during FY24.(Mint)

The Union finance ministry on Friday exuded confidence about India's economic resilience, amid global conflicts and commodity price spikes. Positive indications in the farm sector like the prediction of a normal monsoon and stabilizing food prices will help the country “firewall against any adverse pressures” from such external factors in the coming months, the ministry's monthly economic review said.

The April review by the ministry's Department of Economic Affairs said that while a normal monsoon will stabilize food prices, strong macroeconomic buffers will help the economy navigate external headwinds smoothly and continue the growth momentum of the previous fiscal year (FY24).

According to government estimates, India is expected to report a GDP (gross domestic product) growth of at least 7.6% during FY24, which would be the fastest in any major global economy. The Reserve Bank of India (RBI) expects the Indian economy to register 7% growth in FY25.

Also read: India F24 GDP growth likely hit 8%, to grow 7% in FY25: CEA Nageswaran

The South Asian country's robust economic performance comes amid a slowdown in the global economy, on the back of a high-interest rate regime in advanced economies and various geopolitical conflicts, which have impacted energy prices and trade.

"The crux of the foregoing discussion is that the industrial and service sectors of the Indian economy are performing well, backed by brisk domestic demand and partially by tentative external demand," the review said, adding domestic manufacturing is likely to receive stronger external support in the upcoming months.

"Modestly improved economic activity and consumer sentiment in Europe and a steady US economy have aided India’s exports in April… This can benefit India's manufacturing firms as part of the China Plus One strategy," it added.

Also read: IMF raises India FY25 GDP growth outlook to 6.8%

In FY24, India's merchandise exports stood at $437.06 billion, down from $451.07 billion during the previous fiscal. During the same period, goods imports fell to $677.24 billion from $715.97 billion.

India's trade performance in 2024 was influenced by global events: Houthi attacks on ships on the Red Sea that led raised freight costs and disrupted supply chains; expensive crude oil on account of the continuing Russia-Ukraine war; US-China trade tensions leading to more expensive value chains; and the EU's proposed Carbon Tax and Forest regulations, think tank Global Trade Research Initiative (GTRI) said in a recent report.

In its latest economic review, the finance ministry said the ongoing recovery in the hotel and tourism industry, increased credit flow to transport and real estate segments, policy support and robust investments in physical and digital infrastructure and logistics will help the services sector.

Also read: Robust investment activity to boost growth but inflation a concern: FinMin

Meanwhile, the finance ministry said the harvest for the Rabi Marketing Season for FY25 will temper the prices of agricultural produce like wheat and chana, which along with the prediction of a normal Southwest Monsoon augurs well for food production and easing of price pressures.

"The positive indications in the farm sector should help India firewall against any adverse pressures that may arise from geopolitical tensions and global commodity prices," the economic review said.

"Likewise, the strong macro-economic buffers of India should help the real sectors of the economy navigate the external headwinds smoothly and continue the growth momentum of the previous year," it added.

Interestingly, retail inflation eased slightly to 4.83% in April, down from 4.85% in March, mainly due to falling fuel prices. However, food inflation remains elevated.

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