Amid downside risks to growth and upside risks to inflation, partly channelled through the external sector and partly originating from weather uncertainties, India’s strong domestic demand augurs well for the economy to sustain the growth momentum. Consumption has shown steady and broad-based growth, while investment in capacity creation and real estate is finding traction, finds the Monthly Economic Review (MER) report of the Finance Ministry for April 2023. While April is too early to forecast the economic outcomes for the entire year, a good beginning, though, is a harbinger of positive outcomes, says the MER.
The MER offers optimism based on the financial year 2024 opening on the back of strong activity for the economy, as witnessed in the last quarter of the previous fiscal. With GST collections in April pushed up by the widening of the tax base, Index of Industrial Production (IIP) and Eight Core Industries Index (ECI) showed averaged steady growth in Q4 of FY23, and capacity utilisation hovering close to 75 per cent two quarters earlier.
Among other positives, that the MER suggests bode well for the economy, are air passenger traffic in the last quarter of FY23 finally moving beyond pre-pandemic levels as among last of the services sector components to do so, PMI manufacturing coming in at a four-month high in April 2023 and PMI-services, in the same month, expanded at the fastest pace in 13 years. Within the services sector, rail freight and port cargo traffic posted their best growth performances for April in many years. The robustness of India’s domestic demand finds support from waning of inflationary pressures across countries and prices of international commodities, barring precious metals, which are seen easing in the current year following weakened prospects for global demand and improving supply chains, as projected by the World Bank Commodity Outlook, April 2023. However, as the MER cautions, the price level, however, remains above pre-pandemic levels and may continue to do so if the oil supply gets even more restricted than expected, geo-political tension intensifies, and weather conditions become unfavourable. Thus far, the softening of international prices has led to an easing