NEW DELHI: Inflation still remains a major concern for the economy, prompting both the government and the Reserve Bank of India (RBI) to remain vigilant, according to the finance ministry’s monthly economic review released on Tuesday.
The report said monitoring financial flows in external sector is crucial as they impact the value of the Indian rupee and the balance of payments. Additionally, the complete transmission of monetary policy could moderate domestic demand.
Emerging markets, including India, have benefited from the rapid reversal of rate hike expectations in the US, along with a decline in the US 10-year treasury yield and oil prices. The overvalued US stocks pose a potential risk to global stocks. Overall, India’s growth prospects in FY24 appear promising, supported by sustained public investment in infrastructure and advancements in digital public infrastructure.
Consumer price inflation (CPI) fell in October 2023, mainly due to the dip in core (non-food, non-fuel) inflation. The overall CPI-C inflation was at a four-month low, and its core component was the lowest in the last 43 months. The trend in wholesale price Index (WPI) also suggests that the cost of principal inputs to production in the economy has declined overall.
“Apart from the policy measures of the government, the transmission of the monetary policy tightening may be beginning to take effect. Against a cumulative hike of 250 basis points (bps) in policy repo rate, lending rates have increased by 187 bps in respect of fresh loans and 105 bps in respect of outstanding loans,” said the report.
The Indian economy has been remarkably resilient amid a global slowdown, buoyed by solid domestic demand, it said. The ministry added that the supply-side economy in FY24 has validated the confidence placed in it. The agriculture sector has made rapid progress in procuring wheat and rice, resulting in a continuous increase in food reserves.
Balance of payments
Monitoring financial flows in the external sector is crucial as they impact the value of the Indian rupee and the balance of payments