The Union Finance Ministry today said India’s growth is sustainable due to growing macroeconomic stability on various fronts including improved current account deficit, robust banks and easing inflation pressure. The ministry, however, also mentioned that the downside risk to the official forecast of 6.5% for real GDP growth in FY24 dominate upside risks.   

"FY23 has been strong for India’s economy despite the tailwind of the pandemic and the headwind of the geo-political conflict intertwining to escalate global economic uncertainty. The economy is estimated to grow at 7%, higher than the trend rate and the growth of the other major economies," said the ministry in the monthly economic 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," it added.  

The Economic Survey 2022-23 and RBI also project Indian economy to register a real GDP growth rate of 6.5% in 2023-24 , the review mentioned adding that the estimates are in line with the World Bank estimate of 6.3% and ADB estimate of 6.4% for 2023-24.

"However, we reiterate that downside risks to our official forecast of 6.5% for real GDP growth in FY24 dominate upside risks. OPEC’s surprise production cut has seen oil prices rise in April, off their lows of low-Seventies per barrel in March. Further troubles in the financial sector in advanced nations can increase risk aversion in financial markets and impede capital flows. Forecasts of El Nino, at the margin, have elevated the risks to Indian monsoon rains,” the review added.

The review said the internal macroeconomic stability has further strengthened with easing inflationary pressures in March 2023, driven by the softening of food and core inflation, which fell to a 16-month low. 

"The sequential growth of CPI-core in March 2023 is the weakest since June 2022 and can be attributed to the beginning of the pass-through of declining WPI inflation in consumer goods prices. Although CPI for the full year rose from 5.5% in FY22 to 6.7% in FY23, it was much lower in the second half of FY23 at 6.1% compared to 7.2% in the first half," it said.  

"The easing of international commodity prices, the promptness of measures taken by the government, and monetary tightening by the RBI have helped to rein in domestic inflation. Inflationary expectations also appear to be anchoring, as witnessed in various surveys for households and businesses," it added.

In the context of the recent collapses of banks in the US and Europe on the back of this tightening cycle, the report said that Indian banks are less prone to such incidents. "None of these factors characterises the Indian banking industry. Banking supervision is robust with the RBI’s overarching coverage of institutions, regardless of asset size, in its bi-annual assessment of financial stability," it added.

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