The Union Finance Ministry on Monday said India’s macroeconomic outlook for FY24 is ‘bright’ on the basis of ‘strong domestic fundamentals.’

India is on course to become the fastest-growing economy in the world in 2024 as well.

The FinMin added, however, that there are significant global headwinds that can affect economic activities, including geopolitical tensions and downside risk in US markets.

‘India’s macroeconomic outlook for FY24 is bright and is solidly underpinned by strong domestic fundamentals. Alongside private consumption, investment demand is also firming up. There are additional growth levers in broad-based industrial growth and buoyant residential property markets. Industrial capacity utilization has improved… Core inflation is declining steadily, while food inflation has eased,’ the finance ministry said in its Monthly Economic Review for September 2023.

Tight monetary policies by Central Banks

While global inflation in 2023 is estimated to decline steadily due to the Tight Monetary Policies of central banks.

Adverse geo-political events such as Russia-Ukraine and now Israel-Hamas, along with volatile crude prices and sluggish global demand is affecting India’s trade.

This is projected to recover from H2FY24.

India’s external account looks strong as trade deficit is lower and RBI surveys on manufacturing, consumer confidence, employment and inflation expectations have optimistic findings.

‘In sum, as IMF projections also confirm, India will remain the fastest-growing major economy in the world in FY24,’ the finance ministry said.

Global Economic Headwinds

The report added that global uncertainties have been compounded by recent developments in the Persian Gulf.

Depending on how the situation develops, crude oil prices may push higher.

‘Further, the relentless supply of US Treasuries and continued restrictive monetary policy in the US (with further monetary policy tightening not ruled out) could cause financial conditions to be restrictive,’ the report said.

At current levels, US stock markets have greater downside risk and if it materializes, it will have spillover effects on other markets.

Tense geopolitical conditions can lead to risk aversion and with sustained aversion, they can affect economic activity in other countries, including India, according to the report.