Fin Min says India's outlook for FY24 ‘bright’, but significant headwinds remain

According to the Ministry of Finance, private consumption and investment demand are both “firming up”

The outlook for the Indian economy is "bright", although it does face "significant" headwinds from fresh geo-political tensions, volatile crude oil prices and sluggish global demand, the Ministry of Finance has said.

"...India's macroeconomic outlook for 2023-24 is bright and is solidly underpinned by strong domestic fundamentals. Alongside private consumption, investment demand is also firming up," the ministry said on October 23 in its Monthly Economic Review report.

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"There are additional growth levers in broad-based industrial growth and buoyant residential property markets," the ministry further said, adding that kharif sowing has progressed well and improved reservoir levels "augur well" for the upcoming rabi season.

At the same time, "significant" headwinds remain, it said. However, it expects Indian trade to recover in the second half of 2023-24, while a comfortable level of foreign exchange reserves means India's external account looks robust.

"In sum, as IMF projections also confirm, India will remain the fastest-growing major economy in the world in 2023-24," it said.

According to the IMF, India's GDP will grow by 6.3 percent this financial year. While this forecast is 20 basis points lower than the 6.5 percent projected by the government and the Reserve Bank of India (RBI), non-government economists as well as global agencies, such as the IMF, have made multiple upward revisions to their growth forecasts for India in recent months due to better-than-expected GDP data.

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Commenting on global uncertainties, the finance ministry's report said matters have become more difficult due to the fresh developments following the breakout of clashes between Israel and the Hamas.

"Depending on how the situation develops, crude oil prices may push higher," the report said, adding that the "relentless supply of US Treasuries and continued restrictive monetary policy in the US" could cause financial conditions to be restrictive. As such, it warned of possible spillover risks if US stock markets see a downside risk.

"Fraught geopolitical conditions can cause a general increase in global risk aversion. If these risks worsen and are sustained, they can affect economic activity in other countries, including India."