The services sector can emerge as the key driver and inflationary pressures should soften further going ahead, the ministry said in its Monthly Economic Review released Friday.
The report said that despite all global headwinds, the improving services sector and healthy banking and corporate sectors were providing support, placing India at a better position than its global peers. “As India navigates the choppy waters of an uncertain global economic environment, the Indian banking system and the corporate sector are proving to be pillars of resilience,” the report said.
However, the report warned that though inflation has softened, the geopolitical environment remained tense and may trigger fresh supply concerns in the winter for critical commodities such as crude oil and natural gas.
“India’s growth outlook for 2022-23, though lower than projections made before the outbreak of the conflict in Europe which resulted in sharply higher price for crude oil and other essential commodities, is still comfortably high and confirms the recovery of animal spirits and economic growth from the pandemic-induced contraction in 2021-22.
The report noted that the private sector as well as the banking sector’s balance sheets are healthy and there is an appetite to borrow and to lend, respectively. “Therefore, barring further adverse shocks to commodity prices, India’s terms of trade, economic growth will consolidate and retain its momentum into 2023-24,” it said, adding that as and when the private sector embarks on the long-awaited capital expenditure cycle, building on the government’s capital expenditure of recent years, the country’s potential and estimated economic growth performance in the rest of the decade will inevitably be revised higher.
The report said that improvement in the service sectors is a silver lining. Among the service sector, logistics, tourism and hotel industry continue to be on the path of recovery, now coming close to pre-pandemic levels.
It said kharif sowing supported by monsoon coupled with higher minimum support price for the crops was likely to enhance rural demand.
The report said domestic inflationary pressures had moderated and in the absence of any further shocks, softening global commodity prices along with the RBI‘s monetary measures were expected to cap inflationary pressures in the coming months.
Headline retail inflation eased to 6.7% in July 2022 on the back of a decline in food inflation.
“The declining global prices of edible oils and the government’s measures to reduce domestic prices of these commodities have had a profound impact on tempering India’s retail food inflation,” the monthly review said.
Measures such as calibrated releases of buffer stocks in the case of food commodities and export restrictions in the case of wheat are expected to keep a check on food inflation.