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The finance ministry has exuded confidence that the country will achieve 6.5% growth in FY24 on the back of improved corporate profitability, private capital formation, and bank credit growth, notwithstanding the risks of rising crude oil prices and monsoon deficit.

The ministry’s August edition of Monthly Economic Review said the 7.8% growth recorded in the first quarter (April-June) was on account of strong domestic demand, consumption and investment. The growth was also witnessed in various high-frequency indicators.

Flagging certain risks such as steadily climbing crude oil prices in the global market and the impact of monsoon deficit in August on Kharif and Rabi crops, the review said these had to be assessed. At the same time, it observed that the rains in September have erased a portion of the rainfall deficit at the end of August.

The review also said that a stock market correction, in the wake of an overdue global stock market correction, is an ever present risk, and offsetting these risks are the bright spots of corporate profitability, private sector capital formation, bank credit growth, and activity in the construction sector.

“In sum, we remain comfortable with our 6.5 % real GDP growth estimate for FY24 with symmetric risks,” it said.

Observing that the strength of domestic investment is the result of the government’s continued emphasis on capital expenditure, the report said, measures implemented by the central government have also incentivised states to increase their capex spending.

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The external demand has further complemented the domestic growth stimulus, it said, adding that the contribution of net exports to GDP growth has increased in Q1 of FY24, as services exports have performed well.

High frequency indicators (HFIs) for July/August 2023 reflect the sustenance of growth momentum in Q2 of FY24, it said.

With regard to the banking sector, the review said, a variety of indicators suggest increasing resilience of the sector through declining non-performing assets, improving capital to risk-weighted asset ratio, rising return on assets, and return on equity as of March 2023.

Similarly, as of March 2023, data for non-banking finance companies (NBFCs) indicated improvements in their profitability and risk-taking behaviour, it said.

Further, it said, as per the July 2023 estimates by the RBI, there has been a consistent and broad-based growth in the non-food bank credit of scheduled commercial banks since April 2022.

The report said retail inflation decreased in August, with both core inflation and food inflation easing from July.

The calibrated measures taken by the government, including adjustments in the duties of many critical inputs and monetary policy tightening, helped reduce core inflation to a 40-month low level. Globally, food inflation remains high in many major economies, it said.

In India, it said, consumer food price inflation eased to 9.9 % in August due to the government intervention with targeted measures for specific crops, including build-up of buffer, procurement from producing centres, and subsidised distribution.