The Ministry of Finance's Monthly Economic Review for October emphasizes India's economic resilience in the face of global challenges. The report indicates that while the United States has exceeded growth expectations, there are concerns about structural weaknesses in Europe, China's economic slowdown, and increased geopolitical tensions affecting global growth prospects.
In the domestic economy, India has shown signs of recovery following a temporary slowdown during the monsoon months. The report highlights a rebound in October, driven by steady demand growth, particularly in the fast-moving consumer goods (FMCG) sector. Both urban and rural areas saw improvements in FMCG sales volumes, with rural demand particularly strong, evidenced by robust two-wheeler growth and record-high tractor sales. Additionally, the manufacturing and services sectors displayed resilience with positive trends in the Purchasing Managers' Index.
Despite the positive economic indicators, inflation remains a concern, primarily driven by rising food prices due to disruptions in the supply chain caused by heavy rains. Global oil price hikes have also contributed to price pressures. The report anticipates a moderation in food inflation in the upcoming months, supported by a promising kharif harvest, favorable monsoon conditions, and strong rabi sowing prospects.
On the trade front, India faced challenges as merchandise exports remained subdued due to weak external demand, while higher imports driven by strong domestic consumption widened the trade deficit. Geopolitical tensions and developments in China led to significant outflows from Indian equities by foreign portfolio investors, although foreign direct investment inflows showed steady growth. India's forex reserves recorded a substantial increase in 2024, ranking second globally after China.
The labor market exhibited mixed trends, with formal employment on the rise and a surge in manufacturing jobs compared to pre-pandemic levels. However, urban consumer sentiment regarding job prospects remained cautious. The report cautions about the potential impact of global factors, such as the Russia-Ukraine conflict, on India's trade and inflation outlook. Despite India's robust economy, the Ministry stresses the importance of vigilance in the face of ongoing global uncertainties.