India is in a better position to calibrate its liquidity levels without abruptly stalling growth, even as healthy revenue buoyancy is expected to continue for the rest of the year and the touch services sectors rebound. However, downside risks will persist as the coming winter in Europe may lead to more geopolitical flare-ups.
These are the key takeaways from the latest Monthly Economic Report (for August), released by the Finance Ministry on Saturday.
“Downside risks to growth will persist insofar as India is integrated with the rest of the world. Nor is there room for complacency on the inflation front as lower crops-sowing for the Kharif season calls for deft management of stocks of agricultural commodities and market prices without unduly jeopardising farm exports,” the report stated.
As Russia cuts off energy supply to mainland Europe ahead of winter, heightened international focus on energy security in advanced nations could elevate geopolitical tensions, testing India’s astute handling of its energy needs so far, the report, drafted by the economic division of the ministry, said.
“In these uncertain times, it may not be possible to remain satisfied and sit back for long periods. Eternal macroeconomic vigilance is the price for stability and sustained growth,” it said.
Gross Domestic Product (GDP) growth for the April-June quarter (Q1FY23) came in at 13.5 percent, lower than estimates of the Reserve Bank of India and independent analysts, and prompting a slew of FY23 GDP forecast cuts by various banks and agencies. However, India is still poised to be the fastest growing major economy this year.
India’s retail inflation rate reversed its three-month downward trend in August, rising to 7 per cent from 6.7 per cent in the previous month, driven by a surge in food prices. This could put pressure on the central bank to further hike policy rates later this month.
The MER stressed that there are a lot of positives to be taken from the year so far, including the fact that India has overtaken the United Kingdom to become the world’s fifth-largest economy.
“The real GDP in Q1FY23 is now nearly 4 per cent ahead of its corresponding level of 2019-20, marking a strong beginning to India’s growth revival in the post-pandemic phase. The contact-intensive services sector is likely to drive growth in 2022-23 building on the release of pent-up demand and near universalization of vaccination,” it said.
The report said that a sharply rebounding private consumption backed by soaring consumer sentiments and rising employment will sustain growth in the months ahead, while the investment scenario looks healthy with an increase in private consumption and higher capacity utilization in the current year.
“Government’s spending on capital expenditure is likely to be sustained as buoyancy in revenue growth is expected to remain undiminished in the balance period of the current year,” it said.
The Periodic Labour Force Survey showed the unemployment rate in urban areas shrunk for the fourth consecutive quarter while work demanded under flagship scheme NREGA has been diminishing since May and was at its lowest in August 2022, compared to the corresponding period of the previous two years, signalling a possible reduction in the unemployment rate in rural areas, the report said.
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