Global recovery offers growth upside; food prices to cool: FinMin

The global economy is on the mend with major economies seeing a growth rebound and risk perceptions about geopolitical risks receding, offering a potential upside for growth even as India’s economic performance stands out and its key indicators for March reflect a buoyant domestic economic landscape, the Finance Ministry said on Thursday.

Terming the high food inflation challenge in several major world economies a ‘situation’ warranting continued attention, the ministry noted in its economic review for March that India’s food inflation eased to 8.5% last month, from February’s 8.7%, while headline retail inflation slowed to a 10-month low of 4.85%.

Core inflation, which excludes food and energy prices, eased to 3.3% in March, and a further cooling of domestic food prices was on the anvil, the ministry said, citing the above-normal monsoon projection for the year that bodes well for a good harvest. It did, however, caution that the recent uptick in inflationary pressures across nations along with persistence in core inflation warrants attention.

“Global commodity prices increased in March 2024, driven by both energy and non-energy commodities. Crude oil prices have firmed up since December 2023, partially driven by increasing tension in West Asia and OPEC+ countries deciding to maintain supply constraints until mid-2024,” the ministry noted, adding that food prices had also firmed up in March, following a seven-month-long declining trend, driven primarily by rising prices of vegetable oils. 

“While a record rabi crop will help in moderating cereal prices, the increasing occurrence of weather shocks poses an upside risk to food prices. Geopolitical tensions and their effect on oil prices add to this risk,” the ministry acknowledged. 

Growth outlook

While geopolitical tensions remain a concern, risk perceptions have softened, offering a potential upside for growth and India continues to exhibit robust economic performance, the ministry said, citing strong domestic demand, rural demand pickup, robust investment, and sustained manufacturing momentum.

Stressing that forecasts of high growth rates for India from the International Monetary Fund and the Reserve Bank of India further reinforced the positive outlook, the ministry said that improved consumer and investor confidence underpinned the country’s ability to navigate global challenges successfully.

“In March 2024, India’s economy was marked by record-breaking stock market performance, remarkable GST collections, and substantial growth in the manufacturing and services sectors, reflecting a buoyant domestic economic landscape.

Arguing that February’s industrial output numbers “brought forth encouraging insights into India’s industrial landscape”, the ministry highlighted the 12.3% growth in consumer durables’ production while linking the contraction in consumer non-durables to ‘fluctuations in consumer demand patterns’.

The ministry attributed the moderation in net FDI inflows, which fell to $25.5 billion in the first 10 months of 2023-24 from $36.8 billion a year earlier, to “a rise in repatriation/disinvestment” and said that India fared better than its Asian peers.

“India’s foreign exchange reserves reached an all-time high of $645.6 billion as of March 29, 2024, sufficient to cover 11 months of projected imports and more than 100% of total external debt,” the ministry pointed out.