India’s Finance Ministry is optimistic about achieving a 6.5% growth rate in the fiscal year 2024, underpinned by improved corporate profitability, increased private capital investments, and growth in bank credit. Despite potential challenges like rising crude oil prices and a monsoon deficit, the August edition of the Monthly Economic Review points to the country’s strong performance in the first quarter of FY24, with a growth rate of 7.8%. This growth was attributed to robust domestic demand, consumption, and investment, supported by positive indicators across various sectors.
The report acknowledges potential risks, such as the upward trend in global crude oil prices and the impact of the monsoon deficit on Kharif and Rabi crops in August. However, it notes that September’s rains have partially alleviated the rainfall deficit from the previous month. Additionally, the review highlights the ever-present risk of a stock market correction, particularly in light of a long-overdue global market correction.
Counterbalancing these risks are positive factors, including strong corporate profitability, private sector capital formation, growth in bank credit, and increased activity in the construction sector. The Finance Ministry remains confident in its estimate of 6.5% real GDP growth for FY24, with symmetric risks.
The report attributes the strength of domestic investments to the government’s continuous focus on capital expenditure and measures that incentivize states to boost their capital spending. External demand has also complemented domestic growth, with net exports contributing positively to GDP growth in the first quarter of FY24, supported by robust services exports.
High-frequency indicators for July and August 2023 reflect sustained growth momentum in the second quarter of FY24. Concerning the banking sector, the review highlights improving resilience, evident through declining non-performing assets, enhanced capital adequacy ratios, and increased returns on assets and equity.
Non-banking finance companies (NBFCs) have also demonstrated improved profitability and risk management behavior. The Reserve Bank of India’s (RBI) estimates for July 2023 indicate consistent and broad-based growth in non-food bank credit since April 2022.
The report mentions a decrease in retail inflation in August, with core and food inflation easing compared to July. This was attributed to calibrated measures by the government, including adjustments in duties on critical inputs and monetary policy tightening. While global food inflation remains high in major economies, India saw a reduction in consumer food price inflation to 9.9% in August. This was achieved through government intervention, including buffer build-up, procurement from production centers, and subsidized distribution.
In conclusion, the Finance Ministry remains optimistic about India’s economic growth prospects, emphasizing a balance between potential risks and positive factors that are expected to support the country’s economic trajectory in FY24.
