India is better placed on the growth-inflation-external balance triangle for 2022-23 than it was two months ago, due to the government’s response and the Reserve Bank’s monetary policy measures, the Treasury Department’s monthly economic statement said on Friday. .
Turning to the price situation, the review said that, in the absence of further shocks, the downward movement in global commodity prices together with the monetary measures of the RBI and the government’s fiscal policy will limit inflationary pressures in the coming months.
The easing of inflationary pressures in India is further on the anvil as prices of key commodities such as iron ore, copper and tin used in the domestic production process showed a downward trend globally in July 2022.
Total retail inflation fell to 6.7 percent in July 2022, from 7.01 percent in the previous month.
Despite global headwinds, the IMF forecasts that the Indian economy will grow at a robust 7.4 percent growth rate in 2022-23, the highest of any major economy.
The Reserve Bank of India (RBI) has forecast growth of 7.2 percent for the current fiscal year.
The buoyant performance of some high-frequency indicators during the first four months of 2022-23 is in line with the IMF’s forecast.
The Index of Industrial Production (IIP) and eight core industries point towards strengthening industrial activity, while PMI Manufacturing hit an 8-month high in July with a marked increase in new business growth and output, it said.
On the external front, the heightened investor uncertainty following the outbreak of the conflict between Russia and Ukraine has led to capital outflows, not just from India alone, but from the emerging market economies (EME) group as a whole.
For example, in addition to India, the currencies of several EMEs have depreciated against the US dollar.
Between January and July 2022, foreign portfolio investors pulled $48.0 billion from EMEs, it said.
The report added that global investor confidence in India’s economic landscape is further bolstered by net foreign direct investment (FDI) inflows which remain robust at $13.6 billion in Q1 2022-23, compared at $11.6 billion during the corresponding period last year.
India’s growth outlook for 2022-23, although lower than forecasts made before the outbreak of the conflict in Europe, which resulted in sharply higher prices for crude oil and other essential commodities, is still comfortably high and confirms the recovery of animal welfare. ghosts and economic growth from the pandemic-induced contraction in 2021-22, the report said.
Given that private and banking balance sheets are healthy and that there is a need for loans and borrowings respectively, the report states that, barring further adverse shocks to commodity prices and thus to India’s trading conditions, economic growth will consolidate and maintain its momentum into 2023-24.
As the Indian private sector enters the highly anticipated investment cycle, building on government capital expenditures of recent years, India’s potential and estimated economic growth will inevitably be revised higher over the remainder of the decade.