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Business News/ Economy / Above-normal monsoon forecast to ease inflationary concerns: Finance ministry
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Above-normal monsoon forecast to ease inflationary concerns: Finance ministry

Retail inflation, as measured by consumer price index, fell to a 10-month low of 4.85% in March, slipping below the 5%-mark for the first time since November 2023, but still remaining above the central bank's target of 4%.

The upbeat monsoon prediction has bolstered hopes of a revival of farm sector growth, hit by erratic rainfall last year. (Pappi Sharma )Premium
The upbeat monsoon prediction has bolstered hopes of a revival of farm sector growth, hit by erratic rainfall last year. (Pappi Sharma )

The forecast of above-normal monsoon rains in 2024 indicates a good harvest, potentially easing inflationary concerns in the coming months, the finance ministry's latest monthly economic review said on Thursday.

However, despite global inflation remaining either in check or declining in most regions, the recent uptick in inflationary pressures across nations, along with persistent core inflation, warrants attention, the finance ministry said in its Monthly Economic Review for March, released on Thursday.

"In India, the government and the RBI's (Reserve Bank of India) efforts to combat inflation, including calibrated policy rates, strengthening food buffers, and easing imports, have ensured effective inflation management," the review said.

Also read: Heatwave alert: IMD says temperature to soar in Bengal, Odisha, and other states

"Consequently, retail inflation in FY2023-24 witnessed a significant decline, reaching its lowest level since the covid-19 pandemic, with core inflation dropping to 3.3% in March 2024," it added.

Core inflation strips out the prices of food and energy that tend to be volatile.

Heartening forecast

Last week, the India Meteorological Department (IMD) forecast the June-September south-west monsoon to be above normal—at 106% of the long-period or 50-year average of 87 cm of rainfall.

The upbeat prediction has bolstered hopes of a revival of farm sector growth, hit by erratic rainfall last year.

"Further easing of food prices is on the anvil as IMD has predicted above-normal rainfall during the monsoon season, which is likely to lead to higher production, assuming good spatial and temporal distribution of the rainfall," the ministry said.

Also read: When food inflation became main course on MPC menu

India's food inflation, accounting for nearly half the overall consumer price basket, eased to 8.52% in March, from 8.66% in February, as prices of meat, fish, eggs, and vegetables remained elevated.

Food inflation stood at 8.30% in January and 9.53% in December.

Meanwhile, retail inflation, as measured by consumer price index, fell to a 10-month low of 4.85% in March, slipping below the 5%-mark for the first time since November 2023, but still remaining above the central bank's target of 4%.

The finance ministry expects the trade deficit to decline in the coming years on the back of the production-linked incentive scheme, whose coverage will be deepened and extended to newer sectors. The PLI scheme currently targets 14 sectors such as telecom, electronics, automobiles and pharmaceuticals.

Falling deficit

India's overall deficit in merchandise trade is estimated at $240 billion in FY24, down from $265 billion a year ago.

"Driven by strong exports and resilient remittances, various international agencies and the RBI expect the CAD (current account deficit) to GDP (gross domestic product) ratio to have moderated below 1% in FY2023-24," the finance ministry said in the review.

"Additionally, strategic trade agreements like the India-EFTA Trade and Economic Partnership Agreement (TEPA) signal India's commitment to expanding its global trade footprint and leveraging international partnerships for sustained economic growth," it added.

The finance ministry's monthly review said India continues to be the fastest-growing major economy, with positive assessments of the growth outlook for the current financial year (FY25) by various international organizations and the RBI.

Also read: IMF warns surge in US, China debt could have ‘profound’ impact on global economy

Recently, the International Monetary Fund (IMF) raised India's FY25 GDP growth forecast following similar revisions made by several other agencies, including the World Bank, Asian Development Bank and S&P Global.

While the IMF raised the country's GDP growth forecast to 6.8% from its earlier projection of 6.5%, S&P Global revised it to 6.8% from 6.4% predicted in November on the back of strong domestic demand and a pick-up in exports.

Raising forecast

The Asian Development Bank recently raised India’s GDP forecast for FY25 to 7% from 6.7% earlier. The World Bank also raised its forecast to 6.6% from 6.4%.

However, the finance ministry warned that disparities persist amid the ongoing global economic growth recovery across major economies.

"While the leading indicators signal increased economic activity and geopolitical tensions have eased slightly, recent conflicts continue to pose risks," it said.

"Despite the global challenges, India stands out with its strong economic performance, highlighting broad-based growth across sectors and asserting its pivotal role in supporting the global growth trajectory," it added.

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ABOUT THE AUTHOR
Rhik Kundu
Rhik writes about the Indian economy and its crucial indicators. He is constantly navigating corporates, decoding policies, and dabbling with everything in between.
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Published: 25 Apr 2024, 07:40 PM IST
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