India is set to maintain its status as the world's fastest-growing major economy in the fiscal year 2023-24, according to a report released by the finance ministry. The country's robust economic performance is attributed to its strong domestic fundamentals and the expectation of low inflation. However, the report also highlights the potential impact of global uncertainties and recent developments in the Persian Gulf, which could lead to higher crude oil prices.
The finance ministry's September edition of the Monthly Economic Review underscores the significance of the Persian Gulf situation on global markets. Depending on the evolving circumstances, crude oil prices may experience an upward trajectory. Additionally, factors like the continuous supply of US Treasuries and the persistence of tight monetary policies in the US, with the possibility of further tightening, could lead to restrictive financial conditions.
In terms of US stock markets, the report points out that they currently face greater downside risks than potential gains. Any realization of these downside risks could have a ripple effect on other global markets. The ministry emphasizes that geopolitical tensions can amplify global risk aversion, potentially affecting economic activities worldwide, including those in India.
Despite these challenges, the finance ministry remains optimistic about India's macroeconomic outlook for the fiscal year 2023-24. The country's economic foundation remains solid, with strong domestic fundamentals at its core. Private consumption continues to be a driving force, and there is a noticeable uptick in investment demand. Furthermore, India benefits from various growth drivers, such as widespread industrial growth and a buoyant residential property market. Industrial capacity utilization has also shown improvement.
The report notes that improved reservoir levels bode well for the upcoming Rabi season, and inflationary pressures are under control. Core inflation is on a declining trend, and food inflation has eased. The ministry highlights India's robust external account, with a reduced trade deficit and substantial foreign exchange reserves. The Reserve Bank of India's forward-looking surveys on manufacturing, consumer confidence, employment, and inflation expectations all provide optimistic readings.
"In sum, as IMF projections also confirm, India will remain the fastest-growing major economy in the world in FY24," the finance ministry report said.
The IMF, in its growth projections, raised India's growth rate by 20 basis points to 6.3 percent in October while maintaining the global growth projection at 3 percent. This revision by the IMF reflects the growing confidence of global analysts in India's economic resilience amid ongoing global uncertainties and new geopolitical challenges.
While India's domestic economic fundamentals remain strong and continue to improve, the report acknowledges that downside risks persist due to global headwinds and uncertainties related to weather conditions. However, the overall outlook remains positive for India's economic performance in the coming fiscal year.
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