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

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.

Also Read: Nomura, Deutsche Bank, Morgan Stanley, Moody's raise India growth forecasts

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."