Uncertain weather, external factors pose risks to growth, inflation: Fin Min

New Delhi: India’s economic growth and inflation face potential risks arising from uncertain weather conditions as well as from global factors, as stated in the monthly economic report for April by the department of economic affairs under the ministry of finance. Despite this, the report also highlights the positive impact of domestic consumption. “There are downside risks to growth and upside risks to inflation, partly channelled through the external sector and partly originating from weather uncertainties,” the ministry said.

The report highlights the diminishing inflationary pressures worldwide, driven by the decline in international commodity prices excluding precious metals. This trend is attributed to weakened global demand prospects and improved supply chains. However, caution is advised as price levels may persist above pre-pandemic levels under certain circumstances.

The report identifies potential factors such as escalating geopolitical tensions, adverse weather conditions, unexpected high demand from China, or tighter-than-anticipated oil supplies. “Prices of commodities sensitive to El Niño effects, such as coffee, rice, palm oil, and natural rubber, need to be continuously monitored,” it said.

Softening of international prices affected India’s inflation favourably with WPI inflation declining to 33-month low of -0.9% in April 2023, after remaining in double digits for 18 months. Retail inflation also gradually declined from a peak of 7.8% in April 2022 to an 18-month low of 4.7% in April this year. Sticky core inflation has moderated significantly to almost a three-year low in April, signalling a pass-through of lower input costs by producers. However, the government is expecting tailwinds that are expected from domestic consumption, which has seen steady growth, and from investments into capacity creation and real estate.

“Yet a strong point going India’s way is the strength of its domestic demand. Consumption has shown steady and broad-based growth, while investment in capacity creation and real estate is finding traction,” it added.

The government is also expecting bumper harvest of food grains in FY23. Good prospects for the kharif season in FY24 are expected to keep food inflation low in the upcoming months.

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