India's Economy Surges Amid Global Challenges

New Delhi: The government on Friday said that amid sluggish global growth, India's strong economic performance, borne out by recent data, stood out to be bright due to strong growth and robust fundamentals, but headwinds such as hardening crude oil prices, and global supply chain bottlenecks, remains. Building on the momentum from the previous two quarters, India's economic growth surged to a six-quarter high in Q3FY24, exceeding 8 per cent for the third consecutive time, according to the monthly economic review report released by the Department of Economic Affairs under the Finance Ministry.

Focussing on the private sector in the country's economic growth, the review report further said that India needs to see an increase in domestic household savings in order to finance the private sector's capital formation in the economy. "The narrowing merchandise trade deficit and rising net services receipts are expected to result in an improvement in the current account balance in the ongoing financial year," the report said, cautioning that the current account deficit will bear watching in FY25.

Apart from all other key economic indicators, the ministry has portrayed a positive outlook on headline retail inflation in the country which has been showing a downward trend and maintaining the growth pace in the country. "The core inflation is trending downwards, indicating a broad-based moderation in price pressures. The pick-up in summer sowing is likely to help reduce food prices," the review said.

The review further said that India may face a sectoral impact on agricultural commodities, marine products, textiles and chemicals, capital goods, and petroleum products due to the ongoing Red Sea crisis. "To effectively address these challenges, there may be a need to diversify trade routes and transportation options. That would increase transit costs and affect the price competitiveness of Indian merchandise exports. We have to see if it impacts the value of merchandise exports in FY25," it said.

As far as crude oil prices are concerned, the ministry also noted that the ongoing disruptions in the Red Sea could lead to a rise in oil prices, thereby posing upside risks to inflation and, consequently, to growth. "Sustained increases in shipping costs due to disruption can drive up inflation. The crisis is also reverberating in global food prices. Disruptions in grain shipments from the Russian Federation, Ukraine, and Europe pose risks to global food security," the ministry added.

India is the world's third-largest importer and consumer of oil, and imports over 80 percent of its needs. "Asian economies such as China, Japan, India, and South Korea are among the largest net oil importers globally. Hence continued shipping disruptions could hit Asia. A rise in oil prices could spur inflation and thereby impact growth," the review noted.