Risks of recession may reappear in 2024: India's Finance Ministry

The Finance Ministry of India reports that the first month of the 2023-24 fiscal year has witnessed robust economic activity with a positive outlook for strengthening demand. Despite higher interest rates, signs of a virtuous investment cycle are already evident. The ministry highlights steady consumption growth, traction in capacity creation and real estate investment, and anticipates a stronger demand as inflation recedes. While downside risks exist, the ministry expects prices of commodities, except precious metals, to moderate and predicts enhanced rural economy due to higher crop support prices and government spending

Packaged consumer goods in rural India saw tepid demand in Q3FY24, raising concerns over FMCG sales volumes. Volume growth in rural markets is expected to be flat or slightly lower compared to urban markets.

The sharp widening in India's merchandise trade deficit in October to a record level, fuelled by a broad-based rise in imports, will likely be an outlier, analysts said.

Policy focus must shift from imports to exports

Understanding the reasons why trade flow is at an all-time low

India’s merchandise exports shrank 12.7% in April to a six-month low of $34.66 billion but imports fell by a sharper 14% to hit $49.90 billion, as per initial estimates from the Commerce Ministry released on Monday.

“World GDP growth would be 0.4pp lower in 2024, but only 0.1pp lower in 2025, although the absence of a significant rebound suggests there could be a persistent moderate impact beyond the initial shock,” Fitch said.

While demand for mainstream products has been tepid, demand for premium categories in urban markets has remained steady. Large consumer goods companies are investing in India, expecting a demand revival in the new fiscal.

The UN Conference on Trade and Development (UNCTAD) has raised its economic growth forecast for India in 2023 to 6.6%, up from the previous prediction of 6%. However, it expects growth to slow to 6.2% in 2024. The UNCTAD also predicts global economic output growth to decelerate to 2.4% in 2023 before a small uptick to 2.5% in 2024. The report highlights the need for policy changes and institutional reforms to prevent a lost decade, and mentions that some economies, including India, have shown resilience while others face challenges.

The move is part of the Reserve Bank of India's broader aim of promoting settlement in local currencies with countries with which India has a trade deficit, with the knock-on effect of boosting the rupee's global reach, three banking sources said.