India's economy is likely to see downside risks to growth and upside risks to inflation, partly due to challenges in the country's external sector as well as weather-related uncertainties, the finance ministry said in its Monthly Economic Review for April on Monday.
Going forward, several factors, such as weaker-than-expected oil supply, higher-than-anticipated demand from China, intensification of geo-political tension and unfavourable weather conditions may pose an upside risk for India's inflation forecasts, the Department of Economic Affairs said.
The ministry expects a bumper food grains harvest in FY23 and brightened prospects for the kharif season in FY24 to keep food inflation low in the upcoming months. It also sees rural India's income ticking higher as demand is expected to strengthen further in the first quarter of FY24 owing to the procurement of a good rabi crop harvest which leads to an increase in rural incomes.
Last month, the RBI paused its interest rate hike, holding the benchmark rate at 6.50 per cent. It projected retail inflation to average 5.2 per cent in the current fiscal year. CPI inflation saw a gradual decline from a peak of 7.8 per cent in April 2022 to an 18-month low of 4.7 per cent in April 2023.
Recent data showed that India's wholesale prices fell for the first time in almost three years in April, as softening global commodity prices brought down food, fuel, and other input costs for producers.
WPI inflation has been on a declining trend for the last 11 months and came in at (-) 0.92 per cent in April. This is the lowest level of wholesale price index (WPI) since June 2020, when inflation was at (-) 1.81 per cent.
"Consumption has shown steady and broad-based growth, while investment in capacity creation and real estate is finding traction. April is too early to forecast the economic outcomes for the entire year. A good beginning, though, is a harbinger of positive outcomes," the report read.
The ministry expects exports to lead the next wave of growth for the Indian economy. Merchandise exports in FY22 saw the highest-ever value in absolute terms and saw a seven-year high share in GDP.
India’s merchandise exports increased by 22 per cent in 2021 over the pre-pandemic year of 2019, as
"After witnessing strong growth in FY22, the pace of growth in global merchandise exports moderated in FY23, as persisting geopolitical tensions and monetary tightening induced recessionary fears have led to a decline in discretionary consumer spending across advanced nations," it said.
Source Name:Economic Times