Outlook for the Indian economy appears bright, says Finance Ministry report

The Reserve Bank of India (RBI) has pegged India’s real GDP (gross domestic product) to grow at 7% in FY25, with risks evenly balanced.

"Overall, the outlook for the Indian economy appears bright," said the Monthly Economic Review for the month of January 2024.

The report said that household consumption is expected to improve, while prospects for capital formation are bright owing to an upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates, and the government’s continued thrust on capital expenditure.

The 30-page report noted that improvement in the outlook for global trade and rising integration in the global supply chain will support net external demand.

"However, headwinds from geopolitical tensions, such as supply chain disruptions and higher logistics costs, volatility in international financial markets, and geoeconomic fragmentation, pose downside risks," it said.

The report further said that downside risks to trade include a spike in new commodity prices from geopolitical shocks, including continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation in the developed world, which could extend tight monetary conditions.

"This could impact the expected recovery in global demand, thereby affecting the prospects for India’s exports," it noted.

Citing the latest trends in inflation, the report said that food inflation is expected to moderate further in the upcoming months.

"With the stable downward movement in core inflation and moderation in food prices, the outlook for a reasonably low headline inflation rate is good," it said.

The RBI has revised the inflation projection for Q4 of FY24 downward to 5% in the Monetary Policy Statement of February 2024, from 5.2% in the previous MPC meeting.

(With UNI inputs)