In its monthly economic review for June 2023, the Finance Ministry stated that the domestic dynamics of the Indian economy continue to be strong, despite the fact that negative cross-border spillovers and adverse global developments could at any time act as a deterrent to achieving the potential high growth path in the current fiscal year. The ministry also noted that although inflation has "significantly declined" in the June quarter, the recent increase in the prices of 'fruits, ''vegetables,' and 'pulses and products' due to weather-related disruptions has led to a sequential increase in food inflation in June 2023, highlighting the need for a "cautious approach by RBI and the government."
Comparing the June 2023 quarter to the June 2022 quarter, inflation in India has decreased significantly and is now within the RBI's tolerance range. Since the beginning of the June 2023 quarter, core inflation has also been declining, indicating a return to price stability in the economy. Nonetheless, the recent increase in the prices of 'fruits,''vegetables,' and 'pulses and products' due to weather-related disruptions has resulted in a sequential increase in food inflation for the month of June 2023. As inflation was only recently brought under control and supply-side disruptions, such as El Nino, continue to pose a threat, the RBI and the government remain vigilant for an appropriate and timely policy response, according to the review.
The headline retail inflation rate increased to 4.81 percent in June from 4.31 percent in May, primarily due to a significant increase in food inflation to 4.49 percent from 2.89 percent.
The ministry also mentioned that the Reserve Bank of India (RBI) maintains its policy rates at higher levels than a year ago and closely monitors the potential effects of global and domestic disruptions on India's prices. "Given the volatility of inflation levels, it is evident that the policy rates in other major economies, particularly in Advanced Economies (AEs), for the June 2023 quarter are considerably higher than they were a year ago. Despite the downside risks of sudden emergence of global demand or supply shocks, such as the collapse of the Black Sea Grain Deal in July 2023 or the recent rise in the price of Brent crude, and persistently sticky core inflation, the central banks continue to portray a hawkish stance in an effort to bring inflation down to their respective targets. The Reserve Bank of India maintains its policy rates at higher levels than a year ago, closely monitoring the potential effects of global and domestic disruptions on India's prices, according to the statement.
On the growth front, the report stated that despite an increase in global uncertainties and a moderation in global output, India's growth momentum gathered in the final quarter of the previous fiscal year is likely to be sustained in the June 2023 quarter, as indicated by the performance of various high-frequency indicators such as GST collections, PMI, services exports, e-way bills, etc.
It was stated that the World Economic Outlook update for July 2023 revised India's growth for 2023 (FY24) to 6.1%, up from 5.9% in the April report, while maintaining the growth projection for 2024 (FY25) at 6.3%. "However, negative cross-border spillovers and adverse global developments could at any time act as a deterrent to achieving the potential high growth path in the current fiscal year," the report stated.
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