The Finance Ministry on Monday, March 20, in its monthly economic report for February said the US Fed is likely to increase its rates further and India's current account deficit is likely to fall this fiscal, and the next as well.
The Fed started rising interest rates in March 2022 — just a year back in this cycle. Fed Chairman Jerome Powell last month said the FOMC may have to keep raising rates for longer than previously expected as inflation remains stubborn.
The Finance Ministry said the fall in India's CAD would provide a much-needed cushion to the external sector. It would also ensure external finances are not a major cause of concern, the report added.
It also said the overall demand conditions are conducive to sustaining the growth momentum. The ministry said the fall in CAD would provide a buffer to the Indian rupee in uncertain times.
Also Read: India's India conquers current account deficit hurdle — is a surplus likely in the coming months
On inflation, the report stated that the international agencies are forecasting it would be moderate and likely in the 5-6 percent range with evenly-balanced risks. And with the WPI inflation easing, its transition to CPI is expected soon as well.
On the other hand, India's WPI data indicated that the wholesale inflation had slipped to a 25-month low of 3.85 percent for February 2023. India's retail inflation for February decreased to 6.44 percent in February against 6.52 percent in January 2023. However, it was way above Street estimates of 6.29 percent.
The Finance Ministry's Monday (March 20) report stated that core inflation had remained sticky, around 6 percent, for 12 months.
The report stated that there is sufficient space for the corporate sector to borrow further. It said a strong debt profile of corporates is critical when it comes to maintaining economic stability.
The report stated that the growth momentum for the third quarter is likely to be sustained in the fourth quarter of this fiscal as well. The ministry expects real GDP to grow at 7 percent this fiscal.
On the agriculture aspect, the ministry's report stated that the rabi crop prospects have improved despite February 2023 being the hottest February since 1901. It said there were no adverse effects on the wheat crop across Haryana, Punjab, Rajasthan and Uttar Pradesh, so far.
However, it said that extreme weather conditions such as El Nino could impact food grain production.
On another note, the Centre has also allowed an early wheat procurement by states to avert the possibility of any distress sale by farmers.
And on the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) scheme, the report said its work demand has been declining since May 2022, signalling availability of better employment opportunities.
In the Budget for FY24, the Centre slashed the allocation for MGNREGA to Rs 60,000 crore, the lowest in the past four years. When compared to Rs 73,000 crore allocation in the Budget Estimate (BE) of 2022-2023, the current allocation is 17.8 percent less.
Finance Minister Nirmala Sitharaman had later said that MGNREGA is a demand driven scheme and the allocation tends to keep on adding as per the demands from the states.
On the PLI scheme in 14 sectors, the ministry's report said the success of the same is critical for future growth.
