Finance Ministry Optimistic On Growth, Says Rate Hike Cycle May Temper Demand
The Finance Ministry included inflation as a downside risk to growth, which it said keeps the government and RBI on 'high alert'.
The Finance Ministry maintained its optimism about closing the year with strong growth performance and macroeconomic stability and expressed confidence in achieving the budgeted deficit target for the year.
India aims to cut its fiscal deficit to 5.9% of GDP in FY24, on its path to lowering it to 4.5% by FY26.
The downside risks to growth include inflation, which continues to keep the government and RBI on "high alert", it said in its October Monthly Economic Review.
The ministry said a fuller transmission of the central bank's monetary policy tightening may temper domestic demand. CPI inflation in October eased to a four-month low of 4.9%, although food inflation remained largely unchanged at 6.6%.
"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," the report said.
Fiscal Deficit On Track
The fiscal deficit reached 39.3% of the FY24 target, as of September, on the back of healthy revenue collections and prudent expenditure management.
"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," the review said.
Optimism on domestic demand, particularly private final consumption expenditure, has also been mentioned as "the strongest driver of India’s growth so far in FY24".
"The festive season has further strengthened consumption demand. While accumulated savings and declining rates of unemployment constitute the underlying strength of consumption demand, the wealth effect emanating from rising real estate prices and growing capitalisation of equity markets may have also strengthened consumption," it said.