The Indian economic growth is majorly being driven by strong private consumption in the recent period, even as two new drivers of growth have emerged, the Finance Ministry said in its latest monthly economic review. Further, the report says that India’s fiscal position remains solid with steady revenue growth, and headline inflation is likely to remain within the target band.
Yet, despite the stronger domestic macro fundamentals, the Indian economy sees downside risks from global headwinds and uncertainties in weather conditions, the ministry said.
Among the new two additional drivers of growth India is witnessing, one is the gradual strengthening of investment demand, the ministry said. “Investment has hitherto been propelled mainly by the capital spending of the Union Government and the crowding-in it induced for private corporate investment. While this continues unabated, increasing demand for residential properties, supported by responsive housing loan financing, has given a fillip to construction activity and the property markets,” the report said.
Industrial activity firming up is the second new driver, as per the ministry. An improvement in corporate balance sheets couple with fledgling investment activity, in addition to a strong banking system makes this outlook brighter, the report said.
Downsides to growth
Owing to the ongoing geopolitical conflict in the Middle East, the government and Reserve Bank of India governor Shaktikanta Das recently flagged the risk of a rise in oil prices. The ministry has echoed the worries.
“Global uncertainties have been compounded by recent developments in the Persian Gulf. Depending on how the situation develops, crude oil prices may push higher. Further, the relentless supply of US Treasuries and continued restrictive monetary policy in the US (with further monetary policy tightening not ruled out) could cause financial conditions to be restrictive,” the report read.
The ministry said that currently, the US stock market has greater downside risk than upside risk. “If the downside materialises, it will have spillover effects on other markets. 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,” the report said.
On the fiscal front, the report citing data says that the government is on track to contain the budgeted fiscal deficit to 5.9 per cent of GDP by the end of FY24.
