Consumption demand faces risk from global headwinds, parliamentary panel informed

New Delhi: Top officials informed a parliamentary panel that consumption demand may "face headwinds" due to global pressures while underlining that service exports and foreign exchange reserves provide cushion to face external shocks.

Members of the Parliamentary Standing Committee on Finance, chaired by BJP MP BJP Bhartruhari Mahtab, expressed concern over weakening rupee and sluggish investment, in a meeting with economic affairs secretary Anuradha Thakur and chief economic adviser V Anantha Nageswaran. The panel was briefed on the state of the economy and evolving global and domestic trends.

In a submission to the panel, the department of economic affairs (DEA) said that "some of the pressures emanating from the global environment are beginning to show early signs of transmission into domestic economic activity", signalling a need for close monitoring in the months ahead.

Mahtab said members discussed inflation, the West Asia conflict, China's trade measures and currency volatility. "Despite these serious challenges, India's economy is emerging in a stronger position," he said, citing improving household savings.

"Government capital expenditure is increasing, but private investment has not picked up at the same pace. This is an issue that needs attention," he said, suggesting policy support may be required.

DEA also warned of demand-side risks, noting that "with forecasts pointing to below normal monsoon and likely moderation in economic activity overall, consumption demand may face headwinds in the coming months, warranting close monitoring".

On the external front, DEA highlighted that "external sector buffers such as services exports and foreign exchange reserves provide an important cushion to face the external shocks in near term", but cautioned that rising energy prices could widen the current account deficit.

"The sharp increase in energy prices is expected to raise the import bill and exert pressure on the current account deficit... Developments in the external sector will require continued vigilance and careful macroeconomic management," the DEA said.

The panel also discussed foreign capital outflows, which CEA described as cyclical, driven by higher interest rates in advanced economies such as the US and Japan.

"Earlier, emerging markets attracted a larger share of global investments. Now capital is increasingly moving towards developed economies. These are challenges we must address," Mahtab said, expressing confidence that India's domestic demand strength would help navigate global headwinds.