The Union Finance Ministry on Tuesday (February 20) expressed optimism regarding India's inflation outlook in its monthly economic report, forecasting a further moderation in food inflation in the coming months. It also highlighted a positive outlook for headline inflation rates, stating that prospects for the Indian economy appear bright overall.
The RBI has revised the inflation projection for Q4 of FY24 downward to 5% in the Monetary Policy Statement of February 2024, from 5.2% in the previous MPC meeting.
However, the Finance Ministry cautioned against downside risks to trade, which include a potential spike in new commodity prices from geopolitical shocks, continued attacks in the Red Sea, and supply disruptions, all of which could extend tight monetary conditions and negatively affect global demand recovery.
The ministry pointed out that the average crude oil FoB (free on board) price for the Indian basket during FY24 was $82.2/bbl, lower than the average of $93.2/bbl in FY23.
Moreover, core inflation for FY24 (up to January 2024) was reported as the lowest since FY21 (Ministry of Statistics and Programme Implementation), indicating a favourable environment for output growth and overall inflation.
However, given the persisting uncertainties in global output and trade growth, the MoF underscored the urgent need for India to enhance its export competitiveness and attractiveness.
It emphasised that while lower input prices and overall inflation can have a positive influence on output growth, it is crucial to address existing challenges and find ways to boost exports to capitalise on the promising prospects for the Indian economy.
