Consumers buoyant, inflation to cool: Finmin

The outlook for a “reasonably low headline inflation rate is good”, the Finance Ministry said on Tuesday, citing the stable downward movement in core inflation and moderation in food prices along with higher foodgrain buffer stocks and healthy Rabi harvest prospects.

The outlook for a “reasonably low headline inflation rate is good”, the Finance Ministry said on Tuesday, citing the stable downward movement in core inflation and moderation in food prices along with higher foodgrain buffer stocks and healthy Rabi harvest prospects.

Terming strong private consumption as the “bedrock of high growth”, the ministry’s monthly economic review for January said India’s private consumption trends now reflect “buoyant consumer sentiment that is generally associated with reduced economic uncertainty”.

“A strong Private Final Consumption Expenditure (PFCE) driven by sustained growth in urban demand and recovery in rural demand is supporting India’s growth in 2023-24,” it said.

Referring to the central bank’s projection of 7% real GDP growth in 2024-25, the ministry said that household consumption is expected to improve, while capital formation prospects are bright owing to an upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates, and the Centre’s continued capital expenditure thrust.

Although merchandise exports have declined about 5% so far this year, the ministry noted an improvement in the global trade outlook and said rising integration in the global supply chain will support net external demand. “However, headwinds from geopolitical tensions, such as supply chain disruptions and higher logistics costs, volatility in international financial markets, and geoeconomic fragmentation, pose downside risks,” it said.

Those risks, the ministry said, include a spike in new commodity prices from geopolitical shocks, including continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation in the developed world, which could extend tight monetary conditions and hurt export prospects.

With Rabi sowing slightly higher than last year, the ministry asserted that high reservoir levels, adequate availability of fertilisers and seeds, and growing tractor sales support improvements in sowing acreage and output outturns. That total foodgrain stocks stand at 3.2 times the buffer norm requirement for the January-March period would aid in “curbing inflationary pressures caused by uneven rainfall distribution in the country, besides strengthening food security”, the review stated.