There is considerable excitement and optimism surrounding the 6.5 percent growth forecast for FY24 that the Finance Minister sounded out at the Budget Session in February. Q4 growth in FY23 came in at 6.1 percent, and the economic momentum is continuing to maintain at the start of FY24. Of course, a number of things working in concert are the cause of this optimism.
Source: Mint
Retail inflation has slowed significantly and dropped to an 18-month low of 4.7 percent in April (well within the RBI’s prediction of 5.2 percent for FY24 and well below the tolerance level for the second consecutive month). Additionally, the April Wholesale Price Index reading of -0.92 percent represents a 34-month low.
With capacity utilisation levels in many sectors approaching or crossing 75%, one can anticipate the corporate sector will actively work towards capacity building, supported by strong balance sheets and adequate emphasis on capex in the government’s fiscal policy, including significant support for Make in India through the PLI schemes in a number of sectors.
Of course, the significant amount of money the government has allocated for capex and the enthusiasm of the banks to encourage credit expansion across all segments will both contribute to the whole process through the multiplier impact they provide.
Similar to this, there is a fair chance that our current account balance (CAB) will show a surplus in Q4 due to falling commodity prices, robust services exports, and increased remittances from overseas. More significantly, this is taking place after a six-quarter hiatus. This surplus may easily persist into this quarter as well given how strong the export of services continues to appear, supporting a strong external balance.
Source: CNBC- TV18
Unseasonal rains and heatwaves in many regions of India have recently played spoilsport, affecting agricultural yields in numerous states as well as consumer demand for summer-related goods. El Nino, which has a negative effect on rainfall, also poses a danger to macroeconomic stability and food prices. Further downside risks include lingering geopolitical tensions, weakening global growth, and financial sector instability in foreign countries (which has already resulted in a funding winter in the startup sector).
Overall, one would predict that the MPC would most likely take a break on June 8. Therefore, it stands to reason that the RBI would prefer to wait and see the timing and strength of the approaching monsoon before deciding whether to raise interest rates again. It would also be prudent to evaluate the real effects of the past rate rises on the overall economy.
What do you think about this? Comment below
