Indian economy faces downside risks: FinMin

New Delhi: There are downside risks to growth and upside risks to inflation, partly channelled through the external sector and partially originating from weather uncertainties, the Union Finance Ministry said in a report on Monday.

Consumption has shown steady and broad-based growth, while investment in capacity creation and real estate is finding traction, said the April edition of the Finance Ministry’s Monthly Economic Review.

“April is too early to forecast the economic outcomes for the entire year. A good beginning, though, is a harbinger of positive outcomes,” it said.

Observing that the FY24 for the Indian economy opened on the back of strong activity witnessed in the last quarter of the previous fiscal, the report said GST collections in April, which marked the commercial activity of the last month, underwent a level shift pushed up by the widening of the tax base and heightened economic activity. Index of Industrial Production (IIP) and Eight Core Industries Index (ECI) averaged steady growth in Q4 of FY23, adding to the capacity utilisation hovering close to 75 per cent two quarters earlier, it said. Buoyed by sustainable growth in activity and increasing capacity utilisation, the corporates have started investing in new capacity, it said, adding, the production of capital goods and construction/infrastructure goods, as estimated in the IIP, grew steadily in Q4 of FY23, along with imports of capital goods.

Like the manufacturing and services sector, it said the prospects for the agriculture sector also appear to be bright. The forecast of a normal monsoon, surplus water reservoir levels, adequate availability of seeds and fertilisers, and robust tractor sales augurs well for a healthy Kharif sowing season starting in June 2023, it said.

Despite unseasonal rains, smooth public procurement of wheat augers well for food security, it said, adding, rural demand is also gaining momentum, as evident in sturdy sales of fast-moving consumer goods (FMCG) companies during Q4 of FY23 and sustained double-digit growth of two-three-wheelers sales in April.

Going forward, it said, healthy prospects for the Kharif season, higher minimum support prices (MSP) for crops, and increased budgetary spending by the government are likely to enhance farmers' income and boost the rural economy.

Noting that WPI inflation, after remaining in double digits for 18 months, has now declined to a 33-month low of -0.9 per cent in April 2023, it said, adding CPI inflation has also gradually declined from a peak of 7.8 per cent in April 2022 to an 18-month low of 4.7 per cent in April 2023.