India Relatively Better Placed To Deal With Near Term Challenges: Finance Ministry

The finance ministry, in its latest monthly economic report has emphasised that India continues to have better growth prospects in relation to other major countries. According to the report, the growth momentum of Q4 of 2021-22 has carried into the Q1 of 2022-23 as seen in several high frequency economic indicators for India. The composite PMI for India has risen to its highest level in the last 18 months. In contrast, the growth of world output appears to be stalling with composite PMI of the US, the UK and the Eurozone declining appreciably from April to May. This is consistent with agencies worldwide projecting a slowing of global economic growth from their earlier estimates. India's growth forecast for 2022-23 has also been revised downwards although it continues to be the highest among major countries.

The ministry stated that although the world is looking at a distinct possibility of widespread stagflation, India, is at low risk of stagflation, owing to its prudent stabilization policies. Recent 50 basis point repo rate hike by RBI taking the repo rate to 4.9 per cent and counteractive policy action by Government in form of excise duty cuts, rationalisation of custom duties, enhanced subsidy to targeted sections, trade policy changes and government's continued committed to enhance capex are expected to restrain inflation while underpinning economic growth in the ongoing fiscal year. In the medium term, the successful launch of the Production Linked Incentive Scheme, development of renewable sources of energy while diversifying import dependence on crude oil and strengthening of financial sector are expected to drive economic growth.

Nevertheless, the imported components of high retail inflation in India have mainly been elevated global prices of crude and edible oil. Locally, the onset of the summer heat wave has also contributed to the rise in food prices. However, going forward, international crude prices may be tempered as global growth weakens and the Organisation of Petroleum Exporting Countries (OPEC) increases supply. But, the timing of this remains uncertain and there are also upside risks to oil prices as OPEC supply will not be enough to match the shortfall caused by potential withdrawal of Russian crude from the market.

Going forward, the finance ministry said that India faces near-term challenges in managing its fiscal deficit, sustaining economic growth, reining in inflation and containing the current account deficit while maintaining a fair value of the Indian currency. Many countries around the world, including and especially developed countries, face similar challenges. However, India is relatively better placed to weather these challenges because of its financial sector stability and its vaccination success in enabling the economy to open up. Further, its medium-term growth prospects remain bright as pent-up capacity expansion in the private sector is expected to drive capital formation and employment generation in the rest of this decade. Near-term challenges are needed to be managed carefully without sacrificing the hard-earned macroeconomic stability, the ministry said.

Powered by Capital Market - Live News