Domestic consumption and investment demand will drive economic growth, but inflationary pressures may remain elevated warranting greater vigilance by the government and the Reserve Bank of India (RBI), Finance Minister Nirmala Sitharaman said on Thursday.
The Finance Ministry and the RBI have projected India’s economic growth to be around 6.5% in FY24 compared with 7.2% in FY23. The Q1FY24 growth print has come in at 7.8%.
Earlier this week, the International Monetary Fund raised its economic growth forecast for India from 6.1% to 6.3% for the current financial year.
“In terms of the outlook, while domestic consumption and investment demand are expected to continue driving growth, global and regional uncertainties and domestic disruptions may keep inflationary pressures elevated in the coming months, warranting greater vigilance by the Government and the RBI,” Sitharaman said participating in the 108th Meeting of the Development Committee Plenary of the World Bank in Marrakech, Morocco.
Given the recent spike in food inflation in July and August, the RBI has revised up its Q2 FY24 projection to 6.4% last week from its earlier projection of 6.2%. At the same time, the RBI predicts inflation to moderate in the months ahead as it has reduced its Q3 FY24 projection to 5.6% from its earlier projection of 5.7%. The full-year projection of inflation was retained at 5.4%.
“The government has already taken pre-emptive measures to restrain food inflation which is likely to subside price pressure in the market soon,” Sitharaman said.
The government data on Thursday showed that the CPI inflation moderated appreciably to a three-month low of 5% in September 2023, lower than analysts’ estimate of around 5.5%, offering considerable relief.
“The external sector requires a closer watch to strengthen merchandise export growth in the face of slowing global demand. Services exports continue to do well and are likely to continue doing so as the preference for remote working remains unabated, typically manifested in the proliferation of Global Capability Centres,” she added.
World Bank India office recently said service sector activity is expected to remain strong in FY24 with growth of 7.4% and investment growth is also projected to remain robust at 8.9%.
During July 2023, India’s trade deficit has almost halved compared to a year ago, reflecting the robustness of services exports and a greater decline in the value of merchandise imports than exports, Sitharaman said.
“Improvement in external balance was accompanied by investor confidence in India, as reflected in the strong foreign investment inflows. As a result of robust foreign inflows and a decline in imports, India’s foreign exchange reserves have strengthened and stood at USD 603.9 billion at the end of July 2023,” she said.