April marks a ‘good beginning’ to FY24, the finance ministry said, pointing to strong goods and services tax (GST) collection and other high-frequency data, but flagged downside risks to growth and upside risks to inflation.
Corporates have started to invest in new capacity, rural demand is gaining momentum, and consumption has shown steady and broad-based growth, said the Monthly Economic Review for April released Monday.
The domestic inflationary pressures have eased, the report said but called for continuous monitoring of prices of commodities sensitive to El Nino effects, such as coffee, rice, palm oil and natural rubber.
“April is too early to forecast economic outcomes for the entire year. A good beginning, though, is a harbinger of positive outcomes,” said the upbeat report even as it flagged external risks.
“There are downside risks to growth and upside risks to inflation, partly channelled through the external sector and partly originating from weather uncertainties.” India’s strong domestic demand is its strength, the report said.
The Reserve Bank of India expects the economy to grow a strong 6.5%, down from 7% in FY23.
“Consumption has shown steady and broad-based growth, while investment in capacity creation and real estate is finding traction,” the report said, noting the rise in production of capital and construction goods in the January-March quarter.
“Buoyed by sustainable growth in activity, increasing capacity utilisation to investment-triggering 75%, the corporates have started investing in new capacity.”
The CMIE data also showed that the March quarter witnessed the completion of projects worth ₹60,000 crore and the announcement of new projects valued at ₹10.9 lakh crore, the highest since the inception of its database, it said.
The power sector emerged as a major contributor to new investment, with proposals worth ₹1.8 lakh crore, the review noted.
Rural demand is also gaining momentum, as reflected in robust sales of fast-moving consumer goods companies during the March quarter and sustained double-digit growth of two-three-wheeler sales in April, it said.
The prospects for the agriculture sector also “appear to be bright” on the back of the forecast of a normal monsoon, surplus water reservoir levels, adequate availability of seeds and fertilisers, and robust tractor sales.
Despite an uncertainty in rainfall, the growth of crops is unlikely to suffer, it added.
The outlook for the services sectors, too, remains bright, as indicated in the RBI’s Services and Infrastructure Outlook Survey.
GST collections in April underwent a level shift pushed up by the widening of the tax base and heightened economic activity.