The Finance Ministry on Thursday flagged signs of a weakening in urban consumption, which it said warranted monitoring, even as it projected public expenditure to pick up in the rest of the year after a tepid start amid the general elections, adding that India’s economic momentum had sustained so far in 2024-25 on robust domestic consumption and investment.
Terming the continuing uncertainty in global economic prospects a macroeconomic challenge, the ministry said in its economic review for August that “a cycle of policy rate cuts globally” was likely amid fears of a recession in advanced economies and continuing geopolitical conflicts.
While low oil prices were a bright spot for India’s economy, the Finance Ministry said booming stock markets around the world posed the risk of “an eventual correction,” which may have global spill-over effects if it materialised.
It also flagged “incipient signs of strains in certain sectors,” including the lower capex spends by States this year and a moderation in passenger vehicle sales in the first five months of the year even as inventory builds up. It termed the latter a sign of some weakness in urban consumption. “While these may turn out to be transient with the onset of the festival season, they warrant monitoring,” the ministry noted.
On balance, the movements in high-frequency indicators till August fit well with the real GDP growth projection of 6.5% to 7% for 2024-25 provided by the Economic Survey, the ministry reckoned. Noting that inflation remained “benign” at 3.7% in August, the review argued that the outlook for inflation trajectory was positive as “benign core inflation, good monsoon, and healthy sowing progress of kharif crops are likely to keep inflation under control.”
Adequately replenished reservoir levels would “potentially give a fillip to the upcoming rabi crops as well” but the skewed spatial distribution of rains may have an impact on farm output in a few regions, the ministry cautioned. “However, in the absence of any serious adverse climate shocks, rural incomes and demand should get stronger, and food inflation will be milder.”
On the external trade front, even after factoring in the dip in petroleum product prices, India’s goods exports had grown negligibly between April and August, the ministry said. “It reflects weak global demand and India’s persisting challenges with scaling up production, productivity and competitiveness. At the same time, strong domestic demand meant that merchandise imports grew well,” the ministry pointed out in its monthly report.
Overall, however, the ministry was sanguine about the economy, emphasising there were “strong foundations of macroeconomic stability in India with steady growth, investment, employment and inflation trends, a strong and stable financial sector, as well as, a resilient external account including comfortable foreign exchange reserve position”.
Published – September 26, 2024 09:55 pm IST
