NEW DELHI: Recent developments indicate strong foundation of macroeconomic stability in India with steady growth, investment, employment, and inflation trends, and a strong and stable financial sector, a finance ministry report said on Thursday. However, it cautioned that the challenge is in navigating the continuing uncertainty in global economic prospects.
“We will likely encounter a cycle of policy rate cuts globally, amid fears of a recession in advanced economies and continuing geopolitical conflicts,” said the finance ministry’s monthly economic report for Aug.
The report also flagged worries over surging stock markets globally and the risks linked to a possible correction. “Stock markets around the world are booming, reinforced by recent policy announcements in a few countries. Consequently, the risk of an eventual correction has risen. If the risk materialises, the spillover effect may be felt globally as well. Amidst these concerns, low oil prices are a bright spot for the economy,” said the report.
It also said that for the remaining part of the financial year, the expectation is that public expenditure will pick up, providing added growth and investment impetus. In the farm sector, higher kharif acreage is already visible. Adequately replenished reservoir levels will potentially give a fillip to the upcoming rabi crops as well.
“On balance, the GDP growth of 6.7% in Q1FY25 and the movements in high-frequency indicators till Aug fit well with the real GDP growth projection of 6.5-7% for FY25 provided by the Economic Survey 2023-24,” the report added. It said the outlook for the inflation trajectory is positive as benign core inflation, a good monsoon, and healthy sowing progress of kharif crops are likely to keep inflation under control.
“Headline retail inflation remained benign in Aug 2024 at 3.7%, with softening food inflation and steady core inflation. While replenished reservoir levels and higher kharif sowing acreage augur well for the food price outlook, the effect of the skewed spatial distribution of the monsoon warrants monitoring,” said the report.