The Ministry of Finance's Monthly Economic Review (MER) for October sheds light on India's economic outlook amidst global uncertainties. While the United States has exceeded growth expectations, the report underscores challenges such as Europe's structural weaknesses, China's economic slowdown, and heightened geopolitical tensions impacting global growth. India's domestic economy displayed resilience following a temporary slowdown during the monsoon months, with a notable recovery in October driven by steady demand growth.
The MER indicates positive trends in India's FMCG sector, with improved sales volumes in urban and rural areas, particularly strong rural demand. The manufacturing and services sectors also showed buoyancy, with positive Purchasing Managers' Index trends. However, inflation remained a concern due to rising food prices caused by disruptions in the supply chain for vegetables and elevated global oil prices. The report anticipates a moderation in food inflation in the upcoming months, backed by a promising kharif harvest, favorable monsoon conditions, and robust rabi sowing prospects.
On the trade front, subdued merchandise exports due to weak external demand contrasted with higher imports driven by strong domestic consumption, leading to a widening trade deficit. Geopolitical tensions and developments in China resulted in significant outflows from Indian equities by foreign portfolio investors, although foreign direct investment inflows showed steady growth. The labour market demonstrated mixed trends, with formal employment rising and a surge in manufacturing jobs compared to pre-pandemic levels, yet urban consumer sentiment remained cautious regarding job prospects.
The report emphasizes the potential impact of global factors, including the Russia-Ukraine conflict, on India's trade and inflation outlook. Despite India's robust economy, the Ministry stresses the importance of vigilance amidst ongoing global uncertainties to navigate potential challenges ahead.