Finmin ‘cautiously optimistic’ about growth prospects

However, it pressed the need for continued vigilance and commitment to macroeconomic stability with global economic developments expected to complicate the outlook further. “As we head into 2023, global economic developments are expected to complicate the outlook further, and therefore continued vigilance is a critical aspect in maintaining India’s external resilience. No country can afford to sit on its laurels, India included,” said the ministry in its monthly economic review for November.

It said India needs to stay the course on fiscal consolidation at the general government level while focussing on medium-term challenges such as securing technology and resources for energy transition and skilling its youth for the 21st-century economy.

The government aims to curtail the fiscal deficit to 6.4% of GDP in the current fiscal and to 4.5% of GDP by 2025-26.

With investor interest high at the moment, it needs to be nurtured through macroeconomic stability, said the report.

“As we move ahead in Q3, the momentum has been sustained well. There is cautious optimism as the slowdown in global economic activity is not mirrored in India’s performance of various high-frequency indicators,” the ministry of finance said.

High-frequency indicators pointing to robust growth included the steady growth momentum in service activity as seen in the expansion in PMI Services during October-November, growth in rail freight and port traffic, strong growth in fuel demand, domestic vehicle sales and high UPI transactions, reflecting healthy demand conditions.

While India’s external sector continues to face headwinds from the global slowdown, the robust services export performance through the rest of the year and inward remittances are expected to limit the downside to a widening current account deficit, said the economic review report.

The World Bank has estimated inward remittances to touch $100 bn this fiscal. “Stable foreign direct investment (FDI) flows, resurgent FPI flows, and foreign exchange holdings that provide an import cover of nine months cushion the external front,” it added.

It pointed out that easing of inflationary pressures with retail and wholesale inflation falling to eleven and twenty-one-month lows, respectively, in November augurs well for augmenting consumption in rural and urban regions in the upcoming months.

“Core inflation, however, continues to remain sticky and persisted at an elevated level of 6% in November 2022, partially reflecting increased pass-through of high manufacturing costs to consumer prices as demand continues to recover swiftly,” said the ministry of finance.

India’s retail inflation moderated to 5.88% in November, easing below RBI’s upper tolerance limit of 6% for the first time this year. The RBI led monetary policy committee on 7 December hiked the repo rate by 35 basis points (bps) to 6.25%, the fifth raise in the current fiscal year, taking the policy rate to the highest level since August 2018.