El Nino return can presage lower farm output and higher prices in FY24: FinMin

If the predictions by some meteorological agencies of a return of El Nino conditions in the Pacific are accurate, it could presage a weaker monsoon in India, resulting in lower output and higher prices in FY24, the Finance Ministry said in its monthly economic review of January.

“Some meteorological agencies predict the return of El Nino conditions in India this year. If these predictions are accurate, then monsoon rains could be deficient, leading to lower agricultural output and higher prices. Though inflation risks are likely to be lower for India in FY24. Still, they will not have vanished as global conditions such as geopolitical conflicts, and consequent supply disruptions that contributed to higher inflation in 2022 are still present,” the review stated.

The Economic Survey for FY23 has pencilled in a growth rate of 6.5 per cent for FY24 but with more downside than upside risks.  Similarly, as with prices, external deficits may be a lesser challenge in FY24 than in FY23, but close attention to trends in international trade and capital flows will be
warranted.

“India faces the coming financial year with confidence imparted by underlying and overall macroeconomic stability while being on the alert against geo-political and geo-economic risks. The geopolitical environment remains fraught. In turn, it could cause further economic dislocation through disruptions to the supply chain channels and more,” it said.

The most recent consumer confidence survey for January 2023 suggests a tentative recovery in consumer confidence.

The Finance Ministry's monthly economic review for January said the measures announced in the Union Budget are expected to sustain the growth momentum while aiding in addressing inflationary pressures. In the second half of the current year, headline inflation has been showing a downward trend on account of the measures taken by the government and the RBI.

Domestic economic activity remains robust even as global economic slowdown materialises, reflected in the high-frequency indicators in December 2022 and January 2023. PMI manufacturing remained firmly in the expansionary zone in January 2023 driven by improvement in operating conditions. As of January 2023, PMI services have remained in the expansionary zone for 18 consecutive months, supported by favourable demand conditions and increases in new work, it said.

Transport services activity until the January 2023 period across rail, freight and air modes remained significantly above the corresponding levels of the previous two years.

“Indices of consumer spending such as domestic automobile sales, UPI transactions and credit disbursals indicate that overall demand conditions remain conducive to supporting economic activity. The resilience of private demand is also underscored in the performance of leading private consumer non-durable corporations, which posted healthy revenue growth in 2022,” the review said.