The finance ministry on Monday said India’s macroeconomic outlook for FY24 is bright and is solidly underpinned by strong domestic fundamentals. It, however, said there are significant global headwinds that can affect economic activities, including geopolitical tensions and downside risk in US markets.
“India’s macroeconomic outlook for FY24 is bright and is solidly underpinned by strong domestic fundamentals. Alongside private consumption, investment demand is also firming up. There are additional growth levers in broad-based industrial growth and buoyant residential property markets. Industrial capacity utilisation has improved… Core inflation is declining steadily, while food inflation has eased,” the finance ministry said in its Monthly Economic Review for September 2023.
It, however, said global inflation in 2023 was estimated to decline steadily due to the tight monetary policies of central banks. But fresh challenges have cropped up in adverse geo-political turns and volatile crude prices. Sluggish global demand is affecting India’s trade, but this is projected to recover from H2FY24.
Nonetheless, with a lower trade deficit and a comfortable forex reserve position, India’s external account looks robust. Echoing all this, RBI’s forwarding-looking surveys on manufacturing, consumer confidence, employment and inflation expectations have optimistic findings.
“In sum, as IMF projections also confirm, India will remain the fastest-growing major economy in the world in FY24,” the finance ministry said.
Global Headwinds
The report said global uncertainties have been compounded by recent developments in the Persian Gulf. Depending on how the situation develops, crude oil prices may push higher.
“Further, the relentless supply of US Treasuries and continued restrictive monetary policy in the US (with further monetary policy tightening not ruled out) could cause financial conditions to be restrictive,” the report said.
At current levels, US stock markets have greater downside risk than upside. If the downside materialises, it will have spillover effects on other markets. Fraught geopolitical conditions can cause a general increase in global risk aversion. If these risks worsen and are sustained, they can affect economic activity in other countries, including India, according to the report.
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