“Indian economy’s domestic dynamics continue to be strong. Real GDP growth data for the last quarter of FY23 reaffirmed the ability of the Indian economy to grow on the strength of its domestic demand and investment despite a rise in global uncertainties and moderation in global output,” it said in its monthly economic report for June.
Growth momentum gathered in this quarter is likely to be sustained in the June 2023 quarter. However, price of such stability and growth is eternal policy vigilance, it noted.
On inflation, the ministry said that inflationary pressure has significantly declined in the June 2023 quarter compared to the corresponding quarter last year and has entered the tolerance band of the RBI. But surge in food prices has led to sequential increase in food inflation in the month of June.
“The core inflation has also been softening since the beginning of the June 2023 quarter, indicating a restoration of overall price stability in the economy. However, the recent spike in the prices of ‘fruits,’ ‘vegetables,’ and ‘pulses and products owing to weather-related disruptions has led to a sequential increase in food inflation for the month of June 2023. As inflation has been reined in only recently while threats of supply-side shocks, including El Nino, persist, the RBI and the government continue to be guarded for appropriate and timely policy response,” it said.
The report also outlined the importance of fiscal consolidation along with narrowing of current account deficit for avoiding the challenge of a rising twin deficit.”The government’s progress towards achieving its fiscal target for the year, along with the presence of favourable external sector indicators during the June 2023 quarter, reaffirm the macroeconomic stability of the economy. While both the merchandise exports and imports contracted during the June 2023 quarter, the decline in imports was larger than the fall in exports in absolute terms, leading to a narrower merchandise trade deficit on a YoY basis. A smaller merchandise trade deficit and a consistent service trade surplus augur well for a narrower current account deficit in relation to GDP during the June 2023 quarter,” the review said.Despite adverse global developments, India’s exports are also expected to perform well, driven by strong performance in services exports, the report further said.
“Increased digitisation drive, growing preference for remote working and increased proliferation of Global Capability Centres are expected to further increase India’s services exports. Accompanied with an easing of supply chains and a decline in global commodity prices, the trade deficit is expected to improve further in the coming year.”