India's Improved Monsoon Performance, Capex Augur Well For Macroeconomic Stability: Finmin Report

India's improved monsoon performance, continued expansion in manufacturing, and vigorous capital expenditure spending by the public and private sectors augur well for macroeconomic stability and growth during FY24, the finance ministry said in a report.
     
However, it cautioned that cross-border spillovers and adverse global developments can act anytime as a deterrent to achieving the potential high growth path in the current financial year.
     
The government's emphasis on capex in recent years has given a much-needed thrust to investments in key infrastructure, which has resulted in crowding in of private investment to kickstart the virtuous circle of job creation, income, productivity, demand, and exports supported by favourable demographic dividend over the coming years, said the June edition of the Finance Ministry's Monthly Economic Review.
     
As per Axis Bank Business and Economic Research, Capex by the Corporate sector increased by 22.4 per cent in FY23 compared to the last year, driven by heavy investments in hotels, steel, textiles, cement, and other metals.
     
Private consumption is also expected to improve with the decline in inflationary pressures, it said, adding, CPI inflation has witnessed a moderation in recent months, with a pass-through of WPI inflation getting increasingly reflected.
     
CPI core inflation, which is generally considered a better guide to the direction of future inflation, has also remained below the 6 per cent mark for four consecutive months.
     
Despite adverse global developments, it said, India's exports are also expected to perform well, driven by strong performance in services exports.
     
Increased digitisation drive, growing preference for remote working and increased proliferation of Global Capability Centres are expected to further increase India's services exports, it said.
     
Accompanied by an easing of supply chains and a decline in global commodity prices, the trade deficit is expected to improve further in the coming years, it said.
     
Further, it said, better prospects for global growth than anticipated in the first half of 2023 mean that commodity prices are firming.
     
"The price of Brent crude is up nearly 20 per cent from its recent lows. Better growth prospects and higher commodity prices mean that monetary tightening in the developed world may have further to run," it said.
     
That will affect the monetary policy trajectory in developing countries, too, due to currency and capital flow effects, it added.
     
In sum, it said, "India's improved monsoon performance, solid fiscal performance, continued expansion in manufacturing and services sectors, vigorous capital expenditure spending by the public and private sectors augurs quite well for India's macroeconomic stability and growth in FY24. But the price of such stability and growth is eternal policy vigilance."
     
Further, the fiscal discipline has also contributed to the improvement of the Current Account deficit (CAD), it said.
     
CAD as a per cent of GDP declined from the first to the fourth quarter of FY23 and is expected to further decline in the June 2023 quarter as the trade deficit further narrows while remittances continue to rise, it added.