India's economic outlook for coming months 'cautiously optimistic': FinMin report

Early November trends signalled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation and supply chains, the report stated.

New Delhi: India's economic outlook for the coming months is 'cautiously optimistic', with agriculture likely to benefit from favourable monsoon conditions, increased minimum support prices and adequate supply of inputs, the finance ministry said in a report.

"Bright agricultural production prospects make the inflation outlook benign, despite existing price pressures in select food items," the October edition of Monthly Economic Review released by the Department of Economic Affairs on Monday said.

Early November trends signalled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation and supply chains, it said.

A bumper kharif harvest is expected to lower food inflation in the coming months, it said, adding that a favourable monsoon, adequate reservoir levels and higher minimum support prices are likely to boost rabi sowing and production.

Amidst a clouded global background, and after a brief period of softening momentum over the monsoon months, the report said, many high-frequency indicators of economic activity in India have shown a rebound in October.

These include indicators of rural and urban demand and supply side variables like Purchasing Managers’ Index and E-way bill generation, it said.

On the employment front, it said, the formal workforce is expanding, with notable increases in manufacturing jobs and a strong inflow of youth into organised sectors.

With regard to the external front, it said, India's export recovery may encounter challenges due to softening demand in developed markets.

However, it said, trade in the services sector is sustaining momentum.

Net foreign direct investment inflows registered remarkable growth in the first five months of FY25, it said.

Supported by stable capital inflows, India’s forex reserves increased by USD 64.8 billion so far during 2024, the second-largest increase after China amongst major forex reserve-holding countries, it said.

Apart from the emerging indications of domestic growth and stability, the dynamics of global interest rates, earning growth and valuation, geopolitical developments and policy decisions of the next administration in the United States will determine the course of trade and capital flows, the report said.

Recent developments in the ongoing conflict between Russia and Ukraine have caused some concern in financial markets with safe-haven assets such as US Treasuries and gold finding a bid, it said, adding, that geopolitical conditions remain fragile.

The report said the global economy reveals a mixed outlook as 2024 draws to a close.

Structural weaknesses in parts of Europe and China's slowdown continued to weigh on growth. In contrast, the US economy has surpassed earlier expectations, maintaining steady expansion.