Agriculture is likely to benefit from favorable monsoon conditions, increase in minimum support prices and adequate supply of inputs.
The finance ministry said in a report that India’s economic outlook for the coming months is ‘cautiously optimistic’, with favorable monsoon conditions, an increase in minimum support prices and adequate supply of inputs likely to benefit agriculture.
“Bright agricultural production prospects moderate the inflation outlook, despite existing price pressures in select food items,” said the October edition of the monthly economic review released by the Department of Economic Affairs on Monday.
Trends in early November indicated a moderation in staple food prices, although geopolitical factors may continue to affect domestic inflation and supply chains, it said.
A bumper kharif harvest is expected to ease food inflation in the coming months, he said, adding that a favorable monsoon, adequate reservoir levels and higher minimum support prices are likely to boost rabi sowing and production.
Amid a cloudy global backdrop, and after a brief period of softer momentum in the monsoon months, several high-frequency indicators of economic activity in India showed a recovery in October, the report said.
It includes indicators of rural and urban demand and supply-side variables such as Purchasing Managers’ Index and e-way bill generation.
On the employment front, it said, the formal workforce is expanding, with a significant increase in manufacturing jobs and a strong influx of youth into the organized sectors.
On the external front, it said, India’s export recovery may face challenges due to softening demand in developed markets.
However, it said, trade in the services sector is maintaining momentum.
The first five months of FY25 recorded a significant growth in net foreign direct investment flows, it said.
Backed by steady capital inflows, India’s forex reserves have increased by USD 64.8 billion so far in 2024, the second largest increase after China among countries with major forex reserves, it said.
In addition to emerging signs of domestic growth and stability, the dynamics of global interest rates, earnings growth and valuations, geopolitical developments and policy decisions of the next administration in the United States will determine the path 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, he added, adding that the geopolitical situation remains fragile.
The global economy shows a mixed outlook as 2024 approaches, the report said.
Structural weaknesses in parts of Europe and China’s slowdown weigh on growth. In contrast, the US economy has exceeded earlier expectations by maintaining a steady expansion.