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India’s growth rates can be sustained, the finance ministry has said, while sounding caution about geo-political instability, crude production cuts, trouble in the banking sector in developed countries and disruption in monsoon by El Nino which can upset agricultural produce and thereby prices.
Among the tailwinds that are supposed to facilitate the growth story are an increasingly favourable current account deficit, robust performance by banks and easing of tension on the inflation front said the ministry in its review for March.
“Growing macroeconomic stability, as seen in the improved current account deficit, easing inflation pressure, and a banking system strong enough to survive the increase in policy rates, has made the growth rate further sustainable. With the April 2023 update of the WEO projecting India to be the fastest-growing economy in FY24, it is likely to be underpinned by even more robust stability in the macroeconomic variables,” said the report.
The finance ministry’s observations follow the prediction of the IMF in the second week of this month that the Indian economy would grow by about 5.9% in 2023-24. The IMF arrived at the rate after paring down its forecast of 6.1% that it issued in January this year.
The government also reposed confidence in the banking system of the country which, it said was “less prone” to collapse of banks as recently witnessed in Silicon Valley of the US. The ministry’s review also applauded the supervision by the RBI which it described as “robust”.
One of the areas that caused relief is the current account deficit which is increasingly becoming favourable towards India. It had reduced from 4.4% of the GDP in the July-September 2022 quarter to 2.2% of the GDP in the October-December quarter. Narrowing down of the deficit due to merchandise trade was cited as the prime reason behind this shrinkage.
Experts are of the view that the deficit will narrow down even further in the January-March 2023 quarter.