Finmin: Outlook for coming months cautiously optimistic

India’s economic outlook for the coming months is cautiously optimistic, the Ministry of Finance said in its Monthly Economic Review (MER) for October. According to the report, upward pressure is likely to continue on the trade deficit, driven by a faster pace of import growth.

The goods trade deficit — the difference between exports and imports — stood at $27.14 billion in October, up from $20.78 billion in September.

According to the report, rising commodity prices, particularly for industrial inputs and metals, are expected to contribute to imported inflation and increase the imports bill. Exports face greater uncertainties influenced by geopolitical risks and the modest monetary policy responses of major global central banks, said the report.

The report also states that, on the external front, India’s export recovery may encounter challenges due to softening demand in developed markets. However, trade in the services sector is sustaining momentum. Recent developments in the ongoing conflict between Russia and Ukraine have also caused some concern in financial markets with safe-haven assets such as US Treasuries and gold finding a bid, the report says.

However, it states that agriculture is likely to benefit from favourable monsoon conditions, increased minimum support prices and adequate supply of inputs. The report also states that bright agricultural production prospects make the inflation outlook benign, despite existing price pressures in select food items. India’s retail inflation surged to a 14-month high in October, driven by high vegetable prices. Early November trends signalled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation.