Govt sees risks to growth amid OPEC cuts, El Nino concerns

“We reiterate that downside risks to our official forecast of 6.5% for real GDP growth in FY24 dominate upside risks. OPEC’s surprise production cut has seen oil prices rise in April, off their lows of low-seventies per barrel in March. Further troubles in the financial sector in advanced nations can increase risk aversion in financial markets and impede capital flows. Forecasts of El Nino, at the margin, have elevated the risks to Indian monsoon rains,” the finance ministry said in its monthly economic review for March 2023.

This comes close on the heels of the International Monetary Fund (IMF) predicting earlier this month that the Indian economy would grow 5.9% in FY24, down 0.2% from its January estimate, owing to turmoil in the financial system which will in turn hurt global growth.

The ministry said that while FY23 had been strong for the economy which is estimated to grow at 7%, higher than the trend rate and the growth of the other major economies, despite the tailwind of the pandemic and the headwind of the geo-political conflict intertwining to escalate global economic uncertainty.

Growing macroeconomic stability, as seen in the improved current account deficit, easing inflation pressure, and a banking system strong enough to survive the increase in policy rates, has made the growth rate further sustainable.

“With the April 2023 update of the WEO projecting India to be the fastest-growing economy in FY24, it is likely to be underpinned by even more robust stability in the macroeconomic variables,” it noted. The estimate of 6.5% growth rate is in line with the World Bank estimate of 6.3% and ADB estimate of 6.4% for FY24.

It further emphasised on the strength of the Indian banking system which was ‘less prone’ to incidents such as collapse of a few banks such as the Silicon Valley Bank in the US and Europe owing to an interest rate tightening cycle.

“Banking supervision is robust with the Reserve Bank of India’s overarching coverage of institutions, regardless of asset size, in its bi-annual assessment of financial stability,” the review said.High frequency indicators signal the ongoing recovery in the Indian economy with manufacturing PMI remaining above the threshold of 50 for the 21st consecutive month in March, while PMI services remained above 50 for the 20th successive month in March, EY said in an analysis shared on Tuesday quoting its Chief Policy Advisor, EY India D.K. Srivastava. A figure above the 50 mark shows expansion in output.