Indian economy: Government’s monthly economic report calls for eternal macroeconomic vigilance in uncertain times

Emphasizing that now is not the time to sit idly by, the government’s monthly economic report calls for eternal macroeconomic vigilance as the price of maintaining stability and sustained growth.

He said the US Federal Reserve’s balance sheet has not yet started to shrink and is growing at a slower pace. The concern would start when the balance sheet starts to shrink, as this could trigger risk aversion in capital markets, which would impact flows.

“Despite all the central bank’s hawkish rhetoric, the Federal Reserve’s balance sheet has yet to start shrinking. It’s growing more slowly. When it actually starts to shrink, it may herald a new phase of risk aversion in capital markets, inhibiting global capital With its bright growth prospects, India’s imports are growing faster, and therefore their comfortable financing should be a high priority.

He also flagged the risk of heightened geopolitical tensions in the winter months, as the fight over energy could intensify in advanced countries.

“During the winter months, heightened international attention to energy security in advanced countries could heighten geopolitical tensions, testing India’s shrewd management of its energy needs so far.”

The report says there is no room for complacency even though India is better off in terms of growth and inflation than its peers. He pointed to the upside risk to inflation due to lower Kharif sowings.

“Downside risks to growth will persist as India is integrated with the rest of the world. There is also no room for complacency on the inflation front as lower seedings for the Kharif season requires skillful management of agricultural commodity stocks and market prices without unduly compromising agricultural exports.”

India has banned exports of broken rice primarily used for livestock feed while imposing a 20% export duty on many other categories to better manage domestic stocks and prices. The government said the ban on broken rice exports was put in place to ensure the local poultry and feed industry is not affected. About 60-65% of animal feed input costs come from broken rice and steps have been taken to limit the impact on poultry and dairy products.

The report says easing prices for energy as well as other commodities will ease India’s inflationary concerns. The easing of global supply problems as well as the resumption of sunflower oil exports from Ukraine will help improve the overall outlook.

“The increase in the price of imported raw materials not only led to higher overall inflation, but also widened the trade balance. However, with the easing of global supply chain disruptions and lower prices raw materials, inflationary pressures should ease and the trade balance should improve.”

International Brent crude oil prices have also moderated, but much depends on economic activity in China which has been rocked by the continued lockdowns and construction slump.

“The outlook for international crude prices depends on the pace of China’s economic recovery and OPEC’s supply decisions. Supply chain pressures also appear to dissipate as port congestion and other issues diminish.”

The economic engine in the current fiscal year will be fueled primarily by the revival of contact-intensive sectors thanks to pent-up demand.

“The contact-intensive services sector, which has been hardest hit during the pandemic, rebounded strongly from a weak base to grow 25.7%, year-on-year, in the first quarter of 2022-23, with the resumption of business and leisure travel, a surge in domestic tourism and robust growth in freight and rail freight play an important role in reviving the economy.

The report adds that India performed better in the first quarter of the current fiscal year despite global headwinds and recorded 4% growth compared to the pre-pandemic period. He called the first quarter the period that kicked off the growth phase as India poised to become the world’s fifth largest economy, overtaking that of the UK.


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