Outlook for Inflation Trajectory is Positive; Risk of Eventual Correction in Stock Market Rises: FinMin
The skewed spatial distribution of rain may have an impact on farm output in a few regions, says the finance ministry.
In the absence of any serious adverse climate shocks, rural incomes and demand should get stronger, and food inflation will be milder.
The finance ministry on Thursday said the outlook for inflation trajectory is positive as benign core inflation, good monsoon, and healthy sowing progress of kharif crops are likely to keep inflation under control. It also said that food inflation will be milder in the absence of any serious adverse climate shocks.
“Looking ahead, outlook for inflation trajectory is positive as benign core inflation, good monsoon, and healthy sowing progress of kharif crops are likely to keep inflation under control. The government has lifted the minimum export price restrictions for onions and basmati rice imposed last year to alleviate food inflation. To further stabilise wheat prices, the government has reduced the stockholding limits on wheat traders, wholesalers, and processors to increase the supply in the market and prevent hoarding by large entities,” the finance ministry said in the Monthly Economic Review August 2024.
According to the latest official data available, India’s CPI inflation in August 2024 stood at 3.65 per cent, which is the lowest in five years. This is within the RBI’s target level.
“The skewed spatial distribution of rain may have an impact on farm output in a few regions. However, in the absence of any serious adverse climate shocks, rural incomes and demand should get stronger, and food inflation will be milder,” the finance ministry stated.
Food inflation in August 2024 stood at 5.89 per cent.
India’s Growth Outlook
The GDP growth of 6.7 per cent in Q1FY25 and the movements in high-frequency indicators till August fit well with the real GDP growth projection of 6.5 –7 per cent for FY25 provided by the Economic Survey 2023-24.
“Recent developments…indicate strong foundations of macroeconomic stability in India with steady growth, investment, employment and inflation trends, a strong and stable financial sector, as well as, a resilient external account including comfortable foreign exchange reserve position. A challenge on the macroeconomic front is of navigating the continuing uncertainty in global economic prospects. We will likely encounter a cycle of policy rate cuts globally, amid fears of a recession in advanced economies and continuing geopolitical conflicts,” the ministry said.
However, on the moderating auto sales, the finance ministry report said while these may turn out to be transient with the onset of the festival season, they warrant monitoring.
“The automobile dealers’ body, FADA, has pointed to moderating sales of passenger vehicles and a build-up of inventory. Data from Nielsen IQ indicated that the growth of fast-moving consumer goods sales in urban areas slowed in Q1 FY25. While these may turn out to be transient with the onset of the festival season, they warrant monitoring,” it said.
Stock Market
The finance ministry said stock markets around the world are booming, reinforced by recent policy announcements in a few countries. Consequently, the risk of an eventual correction has risen. If the risk materialises, the spillover effect may be felt globally as well.
“Amidst these concerns, low oil prices is a bright spot for the economy,” according to the Monthly Economic Review 2024.
