“All this being said, these are still early days of the financial year and there are still many challenges to be overcome. The Federal Reserve’s tightening continues. Global liquidity conditions will strengthen and a fall in asset markets may curb sentiment and spending. Geopolitical risks, near and far, are rife. The Finance Ministry’s monthly economic report for June said that for now, we will take the good news on the margins, while being cautious and prepared to deal with anticipated and present risks.
The recent fall in international prices of food items, industrial metals and even crude oil is a welcome development for India’s inflation control, said the report prepared by the Department of Economic Affairs. The revenue generation measures announced recently by the government will not only help in curbing the increase in current account deficit but will also ensure that fiscal slippage, if any, is well contained.
“Overall, on the margins, the first 10 days of June and July were better for the Indian macro than the first two months of the current fiscal. There is some cause of relief and also cautious optimism in these times,” it said.
It said that as long as retail inflation in India remains above the RBI’s tolerance level of 6%, as it is still at 7% in June, stabilization policy measures should be taken as a test to balance inflation and growth concerns. Gotta keep walking.
The report cautioned that global adverse conditions, however, pose a downside risk to growth, as crude oil and edible oils, which have driven inflation in India, remain the major imported components in the consumption basket.
It said the services sector continues to improve and manufacturing capacity is stable. There is a clear willingness to invest from the private sector.