Terming India’s economic outlook for the current fiscal remains “bright”, the finance ministry on Friday said the baseline estimate for GDP growth in FY24 is 6.5%.
“Economic activity maintained its momentum. High frequency indicators suggest that the second quarter of FY24 is shaping up well too,” said the Monthly Economic Review of the ministry.
The Indian economy grew by 7.2 per cent last fiscal but growth is expected to slow down in the current fiscal due to the global slowdown. The economy however, grew at a higher than anticipated rate of 7.8% in the first quarter of 2023-24, raising growth projections by private agencies for the fiscal. However, most agencies still remain cautious about GDP growth with forecasts at less than 6.5%.
The monthly report however, highlighted positives for the economy and noted that the monsoon deficit of August has been partially plugged in September while prices of selected food items that drove inflation to over 7% in July are on the retreat. “Private sector is in good health as data on advance tax payments for second quarter confirm,” the report further said.
While terming the recent run-up in oil prices as an “emerging concern”, the ministry however said that there are “no alarms yet”. Crude oil prices have risen by nearly 30 per cent since June end 2023. Since India depends on imports for more than 85% of its domestic oil needs, higher prices will not only impact inflation but also the fiscal deficit and current account deficit.
“Amid a busy political cycle, we believe higher oil prices may not yet be reflected in inflation, but they will still likely worsen the twin deficits,” said a report by Nomura on Friday.
Meanwhile, the finance ministry’s monthly report also noted that the risks of a stock market correction and geopolitical developments could potentially hurt investment sentiment in the second half of the financial year. “But, the impact of these developments on underlying economic activity in India should be relatively contained,” it said.