India's GDP growth outlook for the financial year 2023-24 remains "bright" and the economy could grow at 6.5% in the fiscal year, the finance ministry says in its monthly economy review for August 2023.
The ministry’s monthly report highlights that it remains “comfortable with 6.5 per cent real GDP growth estimate for FY24, with symmetric risks”. The ministry’s growth forecast aligns with the RBI’s estimate of FY24 growth at 6.5%.
The ministry says the economic activity in the country has maintained its “momentum”, with high-frequency indicators suggesting the second quarter of the fiscal year is also shaping up well.
The monsoon deficit in August could have impacted both Kharif and Rabi crops. However, the previous month’s monsoon deficit has been partially plugged in September. "That is good news," says the ministry, adding the prices of selected food items that drove the inflation rate above 7% in July are on the “retreat” now.
The private sector, the FinMin report says, is in good health as data on 'advance tax payments' for the second quarter confirm. “The restructuring of the balance sheet has placed the companies in a sound position to expand their investment and become more resilient to economic shocks.”
However, the recent run-up in oil prices is an "emerging concern", it adds. Also, the stock market correction, in the wake of an overdue global stock market correction, ia an everpresent risk.
But, there are no “alarms” yet. “The US 10-year bond yield has crossed 4.3 per cent, and the S&P 500 index is not too far from its all-time high. The risks of a stock market correction and geopolitical developments could potentially hurt investment sentiment in the second half of the financial year," the report adds.
The impact of these developments on "underlying economic activity" in India should be "relatively contained", believes the ministry.
India’s economy grew at 7.8% in the April-June quarter of 2023-24, the estimates of real GDP released by the National Statistical Office (NSO) shows. The government has attributed strong “domestic demand for consumption and investment” driving the GDP growth in Q1.
The momentum of economic activity in Q1 of FY24 has been carried forward into Q2 of FY24, it adds. Along with the physical economy, the digital economy is also playing a major role, with increasing adoption of online payment systems and expanding use of smartphones for making payments, the report says.
On inflation, the ministry says the CPI-based headline inflation decreased in August 2023, with both core inflation and food inflation easing from the July figure. It softened to 6.83% year-on-year in August 2023 from a 15-month peak of 7.44% in July.
The Centre has attributed it to “calibrated measures” taken by the government, including adjustments in the duties of many critical inputs and monetary policy tightening, which helped reduce core inflation to a 40-month low level.
The FinMin says globally, food inflation remains high in many major economies, but in India, consumer food price inflation eased to 9.9% in August on targeted measures for specific crops, including a build-up of buffer, procurement from producing centres, and subsidised distribution.
