Growth prospects intact in FY24 but external headwinds weigh: Finance Ministry

India's macroeconomic stability and growth prospects remain intact in FY24 but any negative cross-border spillovers and other adverse global developments can deter the country from realising the potential high growth this fiscal year, the finance ministry said on Thursday.

In its monthly economic report for June, the department of economic affairs (DEA) said the robust growth momentum gathered in the March quarter is likely to have sustained through the June quarter as well.

Improved monsoon showers, solid fiscal performance, continued expansion in manufacturing and services sectors and vigorous capital expenditure by both the public and private sectors augur well for India. "But the price of such stability and growth is eternal policy vigilance," it said.


The report indicated that the monetary tightening in the developed world "may have further to run", thanks to better global growth prospects than anticipated in the first half of 2023 and the firming up of international commodity prices (Brent crude price is up almost 20% from its recent lows). That will impact the monetary policy trajectory in developing countries, too, due to currency and capital flow effects, it added.

Moreover, expectations of a softer landing for the US, milder-than-expected slowdown in Europe and the UK escaping a technical recession have buoyed global financial markets, leading to greater acceptance of risky assets, the report said.

"Since risk assets are now again priced for perfection, downside risk has gone up substantially with consequent potential adverse wealth effects, consumer sentiment and spending power. There could also be a cross-border spillover of negative market sentiment onto other markets priced for perfection, such as India's," the report cautioned.

Despite persistent external headwinds, however, the Indian economy's domestic dynamics continue to be strong, it said. Real GDP growth data for the last quarter of FY23 (the economy beat estimates to record 6.1% growth) reaffirmed the economy's ability to grow on the strength of its domestic demand and investment.

The International Monetary Fund recently revised up its FY24 India growth forecast to 6.1% from 5.9%.

Private consumption is expected to improve with the decline in inflationary pressures, it said.

The government's emphasis on capital spending in recent years has "resulted in crowding in of private investment to kickstart the virtuous circle of job creation, income, productivity, demand, and exports supported by favourable demographic dividend over the coming years", the report added. Corporate sector capex jumped 22.4% on year in FY23, driven by heavy investments in hotels, steel, textiles, cement, and other metals, as per the Axis Bank Business and Economic Research.

The country's exports are also expected to perform well, driven by strong performance by the services sector. "Increased digitisation drive, growing preference for remote working and increased proliferation of Global Capability Centres are expected to further increase India's services exports," it said.