India looks better placed on the growth-inflation-external balance triangle for 2022-23 than it did two months ago, a report by the Finance Ministry said on Friday.
This remark has been made at a time, when both the rates of inflation — retail and wholesale – dipped in July along with drop in global crude prices. While retail inflation, based on Consumer Price Index (CPI), dropped to 6.7 per cent, wholesale inflation, based on Wholesale Price Index (WPI) slipped to 13.9 per cent. Most of the agencies have estimated Current Account Deficit (CAD) to be below 3 per cent of GDP, while GDP growth is projected at 7 per cent plus by various domestic and international agencies.
Taking note of improvement in most of the indicators, Economic Affairs Department said in the Monthly Economic Review (MER) that improvement in the cyclical prospect is a reflection of the swift economic policy response by the government and the central bank. The economy’s resilience, especially in the light of growth challenges elsewhere in the world, is due, in no small measure to the sustained efforts of the government and the central bank to regain and preserve the underlying macroeconomic and financial stability. “Few countries around the world are better placed and can point to a recovery in their macroeconomic fortunes in the last few months as India is able to,” it said.
Although there are some concerns over erratic movement of monsoon, still MER is hopeful of better kharif sowing which coupled with higher MSP (Minimum Support Price) is expected to push rural demand. Urban consumption is expected to benefit from the demand for contact-intensive services, improving performance of corporates and growing optimism of consumers. The robust production of capital goods along with the government’s capex push and large expansion in bank credit will uphold the investment activity. “The manufacturing sector is expected to gain from easing of input prices and a rise in consumer demand during the festive season. As per RBI Survey, manufacturing firms expect sustained improvement in production volumes and new orders in second quarter (July-September) of current fiscal,” it said.
Talking about the outlook, the report said that growth projections were lowered mainly on account of Ukraine-Russia conflict and sharp rise in crude and commodity prices. The International Monetary Fund slashed India’s economic outlook for financial year 2022-23 to 7.4 per cent which is 0.8 per cent lower than earlier estimate of 8.2 per cent. Prior to that World Bank cuts the forecast to 7.5 per cent from 8 per cent. RBI has maintained the growth rate projection at 7.2 per cent.
Still MER says growth outlook is comfortably high and confirms the recovery of animal spirits and economic growth from the pandemic-induced contraction in 2021-22. Private sector and banking sector balance sheets are healthy and there is appetite to borrow and to lend respectively.
“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, India’s potential and estimated economic growth performance in the rest of the decade will inevitably be revised high,” it said.