The forecast of above-normal monsoon in 2024 bodes well for a good harvest, easing inflation concerns, the finance ministry said in a report on Thursday, a day after a Reserve Bank of India bulletin said, “extreme weather events may pose a risk to India’s inflation in the near-term.”
According to the ministry, resilient growth, robust economic activity indicators, price stability, and steady external sector performance continue to support India’s “promising economic performance,” amidst uncertain global conditions.
In its monthly economic report for March, the ministry further said: “Further easing of food prices is on the anvil as the (weather department) has predicted above-normal rainfall during the monsoon season, which is likely to lead to higher production, assuming good spatial and temporal distribution of the rainfall.”
India’s food inflation declined from 8.7% in February to 8.5% in March. Food prices have, however, been a key challenge for the government, which have taken several actions to this end including strengthening buffers of key food items, making periodic open market releases of key grains, easing imports of essential food items through trade policy measures, preventing hoarding through imposition/revision of stock limits, channelling supplies through designated retail outlets, etc.
“Further easing of food prices is on the anvil… which is likely to lead to higher production, assuming good spatial and temporal distribution of the rainfall,” the ministry’s report written by in-house economists said.
The RBI bulletin on Wednesday had noted even as retail inflation in March eased 4.85%, after averaging 5.1% in January-March, food inflation, despite some signs of moderation, remained elevated, and added that this is potential source of risk to the disinflation trajectory. It, however, said that with 4% inflation finally being sighted, there is greater confidence now that the descent of inflation to the target is imminent.
The India Meteorological Department in its first forecast has predicted ‘above normal’ monsoon rainfall at 106% of benchmark – long period average during June-September this year, after ‘below normal’ and patchy rains last year. It stated there is a 90% chance of the rains being in the “normal-to-excess” range.
Considering factors such as geopolitical conflicts, potential adverse domestic weather shocks and the prediction of an above-normal monsoon this year by the IMD, the RBI has projected CPI inflation for 2024-25 at 4.5% compared with 5.4% in 2023-24.
The latest finance ministry report on the economy noted that India’s trade deficit was likely to decline in the coming years as the Production-Linked Incentive (PLI) scheme, which aims at boosting manufacturing, further deepens and extends to other sectors. India’s overall deficit in merchandise trade stood at $240 billion in 2023-24 as against $265 billion a year ago.
India’s merchandise exports contracted 3.1% on year in 2023-24 and imports 5.3%, even though the later months of the year saw a pick-up in the two-way shipments. The contraction in goods trade with other countries came after two successive years of positive growth on the low base created by the pandemic-induced slump in FY20-FY21.
This meant India’s foreign performance in the last year was in line with the global trend – as per the World Trade Organization (WTO), global demand for traded goods shrank 1.2% in 2023.
India continues to be the fastest-growing major economy with positive assessments of the growth outlook for the current financial year. The IMF, in its April 2024 outlook has revised upwards its estimate of India’s real GDP growth for 2023-24 to 7.8% from 6.7% in its January 2024 update.
