India must be vigilant in opposition to a number of potential dangers: FinMin Report

Sounding a word of warning, the finance ministry’s month-to-month financial evaluate on Tuesday mentioned India must be vigilant in opposition to potential dangers of decrease agriculture output, elevated costs and geopolitical developments.

Though the 6.5 per cent progress projection for the present fiscal is in step with the estimates of the World Financial institution and the Asian Improvement Financial institution (ADB), there are elements which might have an effect on the beneficial mixture of progress and inflation outcomes presently estimated, mentioned the March version of the Finance Ministry’s Month-to-month Financial Assessment.

“It can be crucial… to be vigilant in opposition to potential dangers resembling El Nino situations creating drought situations and decreasing agricultural output and elevating costs, geopolitical developments and international monetary stability,” the evaluate mentioned.

All these three might have an effect on the beneficial mixture of progress and inflation outcomes presently anticipated, it mentioned.

The report mentioned FY23 has been robust for India’s economic system regardless of the tailwind of the pandemic and the headwind of the geopolitical battle intertwining to escalate international financial uncertainty.

“The energy is seen within the economic system, estimated to develop at 7 per cent, larger than the pattern price and the expansion of the opposite main economies. Rising macroeconomic stability as seen within the improved present account deficit, easing inflation stress, and a banking system robust sufficient to outlive the rise in coverage charges, has made the expansion price additional sustainable,” it mentioned.

On the monetary sector, the report mentioned, banking supervision is strong with the RBI’s overarching protection of establishments, no matter asset dimension, in its bi-annual evaluation of economic stability.

Macro stress assessments are additionally carried out every now and then on particular person banks. Funding in held-to-maturity (HTM) securities is proscribed to 23 per cent of deposits, reflecting an efficient insulation of asset worth from opposed market developments, it mentioned.

Lastly, fast withdrawal of deposits is unlikely as 63 per cent of the deposits contributed by the households are thought of sticky, it mentioned.

All these elements make Indian banks completely different from these US and European banks who confronted issues following the unwinding of tight financial coverage.

With regard to the worth state of affairs, the report mentioned, the sequential progress of CPI-core in March 2023 is the weakest since June 2022 and might be attributed to the start of the pass-through of declining WPI inflation in shopper items costs.

Though CPI for the complete 12 months rose from 5.5 per cent in FY22 to six.7 per cent in FY23, the report mentioned, it was a lot decrease within the second half of FY23 at 6.1 per cent in comparison with 7.2 per cent within the first half.

“The easing of worldwide commodity costs, the promptness of measures taken by the federal government, and financial tightening by the RBI have helped to rein in home inflation. Inflationary expectations additionally seem like anchoring, as witnessed in numerous surveys for households and companies,” it mentioned.

On the exterior sector, it mentioned, the narrowing of the Present Account Deficit (CAD), accompanied by a rising influx of international portfolio funding (FPI) resulted in a rise in international alternate reserves by the tip of Q3.

With foreign exchange reserves additional rising by the tip of FY23, prospects of a nonetheless narrower CAD in This autumn are shiny, it mentioned.