Monthly Economic Review October 2023

The Department of Economic Affairs has released the Monthly Economic Review of October 2023.

Key points about the Economic Review are given below:

The Indian economy has been remarkably resilient amid a global slowdown, buoyed by solid domestic demand. Major globally renowned rating agencies have also shown confidence in India’s economic strength. While one agency has retained India’s economic growth at 6.7 percent for FY24, another has raised India’s medium-term potential growth estimate by 70 basis points to 6.2 percent. The supply-side economy in FY24 so far vindicates the confidence. In the agriculture sector, rapid progress in the procurement of wheat and rice has ensured a continuous increase in food buffers. Rural demand has sustained sequential momentum in Q2 of FY24 as incomes from food grain production have been stable and inflationary pressures moderate. At the same time, increasing production and expansion in sales have been driving growth in the manufacturing sector. Services activity has also been expanding, driven by favourable demand conditions and a strong influx of new businesses. Despite rising input costs, overall sentiment in the services sector remains upbeat, driven, among others, by an upswing in the tourism and hotel industry as leisure and business travel pick up momentum.

The Central Government is on track to achieve the budgeted deficit target for the current fiscal year as well. Continued buoyancy in revenue collections supported by prudent expenditure management has enabled the fiscal deficit to be contained within 40 percent of the Budget Estimate during the first half of the year. The government’s emphasis on capital expenditure has continued during the year as well, imparting an impetus to private investment. The recent steep and rapid decline in global crude oil prices removes an important source of potential impact on public finances as well.

With more than half of the current financial year witnessing positive developments in the economy, the full financial year should conclude as projected with a strong growth performance and macroeconomic stability. Yet risks on the downside persist. Inflation is one of them that has kept both the government and the RBI on high alert. Financial flows in the external sector also need constant monitoring as they impact the value of Rs. and the balance of payments. A fuller transmission of the monetary policy may also temper domestic demand. The rapid reversal of rate hike expectations in the US and the slide in the US 10-year Treasury yield, coupled with the decline in oil prices, is good news for emerging markets in general, India included. However, the ‘priced to perfection’ US stocks continue to be a source of potential risk for global stocks. On balance, however, India’s growth experience in FY24 will continue to be a positive outlier as compared to other major economies. In the medium term, thanks to the sustained focus on public investment in infrastructure and advances in digital public infrastructure, India can look ahead to the prospect of a longer economic and financial cycle than in the past, subject to global factors.

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