FinMin cautions about lower agri output this yr

New Delhi: Sounding a note of caution, the Union Finance Ministry's Monthly Economic Review on Tuesday said India needs to be vigilant against potential risks of lower agriculture output, elevated prices and geo-political developments.

Although the 6.5 per cent growth projection for the current fiscal is in line with the estimates of the World Bank (WB) and the Asian Development Bank (ADB), there are factors which could affect the favourable combination of growth and inflation outcomes currently estimated, said the March edition of the Finance Ministry's Monthly Economic Review.

"It is important to be vigilant against potential risks such as El Nino conditions creating drought conditions and lowering agricultural output and elevating prices, geo-political developments and global financial stability," the review said.

All these three could affect the favourable combination of growth and inflation outcomes currently anticipated, it said.

The report said FY23 has been strong for India's economy despite the tailwind of the pandemic and the headwind of the geopolitical conflict intertwining to escalate global economic uncertainty.

"The strength is seen in the economy, estimated to grow at seven per cent, higher than the trend rate and the growth of the other major economies. Growing macroeconomic stability as seen in the improved current account deficit, easing inflation pressure, and a banking system strong enough to survive the increase in policy rates, has made the growth rate further sustainable," it said.

On the financial sector, the report said, banking supervision is robust with the RBI's overarching coverage of institutions, regardless of asset size, in its bi-annual assessment of financial stability. Macro stress tests are also performed from time to time on individual banks. Investment in held-to-maturity (HTM) securities is limited to 23 per cent of deposits, reflecting an effective insulation of asset value from adverse market developments, it said. Finally, rapid withdrawal of deposits is unlikely as 63 per cent of the deposits contributed by the households are considered sticky, it said.