Domestic consumption and investment demand will continue to drive growth, but global uncertainty and domestic disruptions may keep inflationary pressures elevated in the coming months, warranting greater vigilance by the government and the Reserve Bank, the Union Finance Ministry says in its latest monthly economic review for July 2023.

In July 2023, though growth prospects have been strong, says the ministry, inflationary pressures have "re-emerged", driven primarily by global disruptions, along with domestic factors. Retail inflation spiked to 7.4% in July 2023, with specific food commodities mainly driving the increase, while core inflation stayed at a 39-month low of 4.9%.

Cereals, pulses, and vegetables exhibited double-digit growth in July compared to the corresponding period last year. The ministry says interruption in the supply chain of tomatoes due to "white fly disease" in Kolar district, Karnataka, and the swift arrival of monsoon in northern India caused a surge in tomato prices. Tur dal price also inflated due to deficient production in Kharif season FY23, the ministry adds.

The government hopes the price pressure in the market will subside soon as it has already taken "pre-emptive measures" to restrain food inflation, including the arrival of fresh stock.

Persistent geopolitical concerns continue to shadow the world trade growth, which is expected to decline to 2% in 2023 from 5.2% in 2022, says the ministry. India's external sector, however, has displayed resilience with strong services export growth and robust investment inflows highlighting investors’ confidence in India’s growth story.

The Centre thinks the external sector requires monitoring for further strengthening the prospects in the face of the active pursuit of industrial policies globally. It says services exports are doing well and are likely to continue to do so as the "preference for remote working remains unabated", typically manifested in the proliferation of Global Capability Centres.

However, the ministry says, from a medium-term perspective, it is crucial to monitor the impact of new technologies, such as artificial intelligence, on the external demand for Indian services exports and the consequent impact on employment.

Additionally, the ministry flags that downside risks to global stock markets on account of rising bond yields and anticipation of further monetary tightening do affect stock markets in emerging economies. "Maintenance of macroeconomic stability may be returning as an important policy objective after about a year of relative abatement of macroeconomic headwinds."

On human development, the ministry says the recently released 'National Multidimensional Poverty Index Report' by Niti Aayog shows a remarkable decline in the prevalence of "multidimensional poverty" in India. "With the national MPI nearly halving between 2015-16 and 2019-21, India is likely to achieve the SDG Target on multidimensional poverty much ahead of the stipulated timeline of 2030." The 13.5 crore Indians escaped poverty between 2015-16 and 2019-21, and graduated to the middle class, shows the data. The ministry says this will boost the engine of self-sustained growth through consumption, savings, and human capital accumulation.

The International Monetary Fund (IMF), in its latest World Economic Outlook (WEO) of July 2023, had revised India’s real GDP growth forecast for FY24 by 20 basis points (bps), raising it from 5.9% (as per its April 2023 WEO) to 6.1%. The ministry has attributed it to the momentum gained from stronger-than-expected growth in the fourth quarter of FY23, driven by robust domestic investment. The government in FY24 Budget increased the capital outlay by 33.3%, raising the share of capital expenditure in total expenditure from 12.3% in FY18 to 22.4% in FY24 (BE).

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