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Further easing of food prices is “on the anvil” as India Meteorological Department (IMD) has predicted above-normal rainfall during the monsoon season, the Ministry of Finance said in its latest monthly economic review for March released Thursday.
This comes even as high food inflation remains a challenge in several major economies across the world and the Reserve Bank of India (RBI) sees food price uncertainties weighing on the inflation outlook, it noted.
“In India, food inflation declined from 8.7 per cent in February to 8.5 per cent in March. Food inflation is caused by certain specific food items like vegetables and pulses. Food prices have been a key challenge for the governments…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,” it said.
The Ministry said retail inflation in FY24 witnessed a significant decline, reaching its lowest level since the Covid-19 pandemic, with core inflation dropping to 3.3 per cent in March 2024. The RBI in its latest ‘State of the Economy’ article in the March bulletin released Tuesday had said that food inflation, despite some signs of moderation, remains elevated and a potential source of risk to the disinflation trajectory. Also, adverse weather conditions and extended geopolitical conflicts can result in volatility in crude oil prices and may pose a threat to inflation in the near term, the RBI said.
On the growth front, the Ministry said India continues to exhibit robust economic performance with factors such as strong domestic demand, rural demand pickup, robust investment, and sustained manufacturing momentum having contributed to India’s resilience. Globally, there are fading fears of recession and rebounding growth in major economies, while some areas are experiencing subdued economic activity. Geopolitical tensions remain a concern but risk perceptions have softened, the Ministry said.
“Overall, resilient growth, robust economic activity indicators, price stability, and steady external sector performance continue to support India’s promising economic performance amidst uncertain global conditions,” it said.
Global slowdown and ongoing geopolitical tensions resulted in contraction of India’s merchandise exports for four subsequent quarters, it said, adding that the slowing of trade has resulted in the merchandise trade deficit narrowing in FY24, as exports have shown a smaller contraction than imports. “However, there is evidence of a trend reversal in Q3 of FY24, with merchandise exports registering growth,” it said.
Merchandise exports in FY24 have been largely driven by rising exports of electronic goods and engineering goods, while exports of gems & jewellery and organic & inorganic chemicals have dragged the overall export growth down, the ministry said. Electronic goods have emerged as a standout sector in the country’s export basket amid a slowdown in global trade, with its exports accounting for 6.7 per cent of India’s total exports in FY24, it said.
However, the non-petroleum and non-gems & jewellery merchandise exports have shown resilience with a sustained uptick in the last few months, it added. On the import side, apart from oil, non-oil-non-gold imports have been weak, with capital goods, chemicals and coal imports having led the way. Gold and electronic imports picked up pace, it said.
Services exports rose by 5.2 per cent in Q3 FY24, compared to a growth of 4.2 per cent in the previous quarter. “Structural change in the composition of services exports has given a fillip to the external sector, with software exports growing and non-software exports led by business services also rising at the same time,” it said.
Going forward, India’s trade deficit may further decline as the Production Linked Incentive (PLI)-scheme deepens its coverage and extends to other sectors, it said. The Ministry also pointed out the recently signed India-European Free Trade Agreement (EFTA) saying it is expected to increase the global market share of the country’s exports and reduce India’s import dependence.
