Bright Outlook for Economy: Finance Ministry


Bright Outlook for Economy: Finance Ministry

According to a report by the finance ministry last week, the economy is predicted to grow at a rate of 7% in the next fiscal year,. This comes after a projected growth of 7.3% for the current fiscal year, marking the third consecutive year of growth exceeding 7%. The optimistic outlook is attributed to a strong performance in Q2 and positive growth projections for FY24.

Growth drivers: The report also anticipates healthy ‘Rabi’ (winter)  harvests, sustained manufacturing profitability, and service resilience to bolster economic activity in FY25. Household consumption is projected to improve, and fixed investment prospects look promising due to a boost in private capex cycle, improved business sentiments, healthy bank and corporate balance sheets, and the government's emphasis on capital expenditure.

Challenges: The  report also warns of potential challenges arising from geopolitical tensions, volatility in international financial markets, and geoeconomic fragmentation. The global slowdown, particularly among India's major trading partners, has reduced demand for Indian merchandise exports.

Trade deficit: Nonetheless, a decrease in the value of imports due to falling international commodity prices has narrowed India's merchandise trade deficit. The report anticipates this, along with rising net services receipts, to improve India's current account deficit.

Foreign Portfolio Inflows (FPIs) flows: The strong macroeconomic fundamentals, high growth, and stable business environment have boosted Foreign Portfolio Inflows (FPIs). On the inflation front, pressures eased in January 2024 due to falling food and core inflation.

Core inflation: The government's recent measures to control food prices are expected to further reduce inflation. A normal monsoon forecast and the expected fading of El Nino are likely to result in better-than-normal ‘Kharif’ (summer)  sowing.

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

Urban unemployment: The report also notes a decline in the urban unemployment rate to 6.5% in Q3 of FY24, the lowest since the Periodic Labour Force Survey (PLFS) began. Formal sector employment also demonstrated robust growth, indicated by a sharp increase in the Employees Provident Fund Organisation (EPFO) subscription base.

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