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Even though geopolitical risks remain which could trigger fresh supply concerns in the winter for critical commodities of crude oil and natural gas, India is better placed on the growth-inflation-external balance triangle for 2022-23 than it was two months ago on the back of government policy response and the Reserve Bank’s monetary policy actions, the Finance Ministry’s monthly economic review said on Friday.
Going ahead, kharif sowing supported by southwest monsoon coupled with higher MSP for kharif crops is likely to enhance rural demand, it said. “Urban consumption is expected to benefit from the demand for contact-intensive services, improving performance of corporates and growing optimism of consumers. The robust production of capital goods along with the government’s capex push and large expansion in bank credit will uphold the investment activity,” the report added.
On the price situation, the review said in absence of any further shocks, the downward movement of global commodity prices along with the RBI’s monetary measures and the government’s fiscal policies are expected to cap inflationary pressures in the coming months.
Softening of inflationary pressures in India is further on the anvil the prices of important raw materials like iron ore, copper and tin that feed into the domestic manufacturing process, globally trended downwards in July 2022, it said. Headline retail inflation eased to 6.7 per cent in July from 7.01 per cent in June.
Despite global headwinds, the IMF forecasts India’s economy to grow at a robust rate of 7.4 per cent in FY23, the highest among major economies.
On the external front, the review said, post the Russia-Ukraine conflict outbreak, a rise in uncertainty among investors has led to capital outflows, not just from India alone but from the group of emerging market economies (EMEs) as a whole.
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Thus, apart from India, the currencies of several EMEs also depreciated against the US dollar. Between January and July of 2022, foreign portfolio investors pulled out $48.0 billion from EMEs, it said.
The report added that global investor confidence in India’s economic landscape is further endorsed by net foreign direct investment inflows remaining robust at $13.6 billion in Q1 of FY23, against $11.6 billion in the corresponding year-ago period.
