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Momentum in economy holding up better than expected: Finance ministry report

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NEW DELHI: India’s macro risks have receded in the last six weeks due to the steps taken by the Centre and the Reserve Bank of India (RBI) and the decline in oil prices due to global recession fears, the finance ministry said in a report on Thursday, asserting that the momentum in the economy is holding up better than expected but cautioned on the need to remain on guard.
“All that being said, these are still early days in the financial year and there are still many challenges to overcome. The Federal Reserve continues to tighten. Global liquidity conditions will tighten and asset market declines can dampen sentiment and curb spending. Geopolitical risks, near and afar, are rife. For now, we will take the good news, at the margin, while remaining on guard and ready to tackle anticipated and present risks,” according to the finance ministry’s monthly economic report for June.
The report prepared by the department of economic affairs said the recent moderation in the international prices of food items, industrial metals and even crude oil are welcome developments for India’s inflation control.
Recent revenue generation measures announced by the government will not only help to rein in the rise in the current account deficit but also ensure that fiscal slippage, if any, is well contained, it added.
“In sum, at the margin, June and the first ten days of July were better for Indian macro than the first two months of the current financial year. That is some cause for relief and even cautious optimism in these times,” according to the report.
It said that as long as retail inflation in India continues to be higher than RBI’s tolerance level of 6%, as it still is at 7% in June 2022, stabilisation policy measures will need to continue walking the tightrope of balancing inflation and growth concerns.
The report cautioned that global headwinds, however, continue to pose a downside risk to growth as crude oil and edible oils, which have driven inflation in India, remain the major imported components in the consumption basket.
“For the present, their global prices have softened, as fears of recession have dampened In addition, various measures taken by the government to temper inflationary pressures may also contribute to capping inflation prices somewhat. This would weaken inflationary pressures in India and rein in inflation,” according to the report.
It said the services sector recovery is continuing and manufacturing strength is steady. There is an apparent keenness to invest on the part of the private sector. Banks are willing to lend and their financial health, as the central bank’s stress tests reveal, is quite strong. Brisk GST receipts monthly confirm the momentum in the economic activity.
It said that as long as retail inflation in India continues to be higher than RBI’s tolerance level of 6%, as it still is at 7% in June 2022, stabilisation policy measures will need to continue walking the tightrope of balancing inflation and growth concerns.



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