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.
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 as the prices of important raw materials such as iron ore, copper and tin that feed into the domestic manufacturing process, globally trended downwards in July 2022, it noted.
Headline retail inflation eased to 6.7 per cent in July 2022 from 7.01 per cent in the previous month.
Despite global headwinds, the IMF forecasts India’s economy to grow at a robust rate of 7.4 per cent in 2022-23, the highest among major economies. The Reserve Bank of India (RBI) has projected a growth rate of 7.2 per cent for the current fiscal.
The buoyant performance of some high frequency indicators during the first four months of 2022-23 is consistent with IMF’s forecast.
The Index of Industrial Production (IIP) and eight core industries points towards strengthening of industrial activity, while PMI Manufacturing touched an 8-month high in July with marked gains in growth of new business and output, it said.
On the external front, it said, post the outbreak of the Russia-Ukraine conflict, an increase 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.
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 USD 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 (FDI) inflows remaining robust at USD 13.6 billion in Q1 of 2022-23, as compared to USD 11.6 billion during the corresponding period of the last year.
India’s growth outlook for 2022-23, though lower than projections made before the outbreak of the conflict in Europe which resulted in sharply higher price for crude oil and other essential commodities, is still comfortably high and confirms the recovery of animal spirits and economic growth from the pandemic-induced contraction in 2021-22, it said.
Observing that private sector and banking sector balance sheets are healthy and there is appetite to borrow and to lend respectively, the report said barring further adverse shocks to commodity prices and thus India’s terms of trade, economic growth will consolidate and retain its momentum into 2023- 24.
As and when the Indian private sector embarks on the long-awaited capital expenditure cycle, building on the government’s capital expenditure of recent years, it said, India’s potential and estimated economic growth performance in the rest of the decade will inevitably be revised higher.