The finance ministry on Friday said economic activities in the second quarter of this fiscal are “shaping up well”, building on the momentum witnessed in the June quarter, even as it termed the recent run-up in global crude oil prices an “emerging concern” if not an “alarming” factor.
In its monthly economic report for August, the Department of Economic Affairs (DEA) also said the risks of a stock market correction and geopolitical developments could potentially hurt investment sentiment in the second half of the financial year.
The monsoon deficit in August could impact crops, which needs to be assessed, it said, adding, however, that plentiful showers in September have erased a part of the earlier deficit.
“But the impact of these developments on underlying economic activity in India should be relatively contained,” the report said. The risks will be offset by the “bright spots” of corporate profitability, private sector capital formation, bank credit growth and activity in the construction sector.
“In sum, we remain comfortable with our 6.5% real GDP growth estimate for FY24 with symmetric risks,” the report said.
The strong advance tax collections for the second quarter of FY24 suggest the private sector is in good health and that “they are investing”, it added.
The deleveraging and restructuring of the balance sheet have placed companies in a sound position to bolster investment and become more resilient to economic shocks, while banks remain healthier than before and are in a position to satiate the rising credit appetite of the economy, the report said, explaining the optimism behind the ministry’s assessment.
Growth momentum for private non-financial companies continued from the March quarter into the first quarter of FY24. The business sentiments remain upbeat, as indicated by RBI’s Quarterly Enterprise Surveys, it added.
Retail inflation dropped to 6.83% in August from a 15-month high of 7.44% in the previous month, as core inflation dropped to a 40-month low. Prices of selected food items that drove the inflation rate above 7% in July are on the retreat, the report said. The report attributed the moderation in inflation to “calibrated measures” taken by the government, including adjustments in the duties of critical inputs and the monetary policy tightening. Targeted measures for specific crops, including build-up of buffers, procurement from producing centres and subsidised distribution, weighed down food inflation, it added.
The report expected a moderation in bond yields as inflationary concerns have started to abate. The government’s commitment to fiscal prudence will also aid in keeping G-sec yields in check, it added.
Outlook for both the manufacturing and services sectors remains positive, the report said, citing surveys by the Reserve Bank of India (RBI).
Meanwhile, organised sector employment indicated healthy growth, including a rise in new members joining Employee Provident Fund Organization (EPFO) and more members rejoining than exiting the social security net, it said.
Apart from facilitating the formalisation of labour, the government has also taken major steps to secure the future of unorganised workers through minimum guaranteed pension under Atal Pension Yojana, PM-SYM etc., forming an expansive social security net woven in recent years, the report said. This two-pronged approach of formalisation and social security for informal workers “exemplifies a sustainable approach to long-term inclusive growth”, it added.
