India’s economic outlook remains bright, increased oil prices only cause of concern: FinMin report

'This confidence is reflected in impressive performance of Indian capital markets'


India’s economic outlook for the current financial year remains bright, based on the strong domestic demand for consumption and investment. These factors drove the GDP growth to 7.8 per cent during the first quarter, according to a ministry of finance report.

“Economic activity maintained its momentum. The high finance indicators suggest that the second quarter of FY24 is shaping up well too. The monsoon deficit of August has been partially plugged in September and that is good news. Prices of selected food items that drove the inflation rate above 7 per cent in July are on the retreat,” the monthly report from the department of economic affairs said. “The retail inflation decreased in August, with both core inflation and food inflation easing from the July figure.”

The government data says even the private sector is in good health as advance tax payments for the second quarter confirm. “They are investing.” This vindicates and strengthens investors’ confidence in the Indian growth story.
This confidence is reflected in the impressive performance of the Indian capital markets which outperformed some of the emerging markets and advanced economies. Foreign Portfolio Investors (FPIs) and Domestic Institutional Investors (DIIs) supported the buoyancy in the markets.

The only factors that cause worry are the recent run-up in oil prices. But it is not a cause of alarms yet. “The US 10-year bond yield has crossed 4.3 per cent, and the S&P 500 index is not too far from its all-time high. The risks of a stock market correction and geopolitical developments always weigh on investment sentiment but it may have limited impact on India,” the government report said, adding that India’s economic growth in FY24 is 6.5 per cent.

The government said the steady decline in the urban unemployment rate has contributed to keeping private consumption strong in the economy. As strengthening consumption led to a rise in demand for goods and services, both the manufacturing and the services sectors saw their output grow robustly in the first quarter of the current financial year.

The report says the strength of domestic investment is the result of the government’s continued emphasis on capital expenditure.

As regards to the banking sector, the report argues that resilience is growing due to declining Non-Performing Assets (NPA), improving Capital Risk-weighted Asset Ratio (CRAR), rising Return on Assets (RoA), and Return on Equity (RoE) as of March 2023.

The data for Non-Banking Finance Companies (NBFCs) indicated improvements in their profitability and risk-taking behaviour. There also has been consistent and broad-based growth in the non-food bank credit of Scheduled Commercial Banks (SCBs) since April 2022.

During the pandemic years, the fall in banking sector earnings resulted in debt levels rising again. With easing restrictions, steady economic recovery led to gradual improvement and strengthening of the balance sheets of corporates, as evident in the decline in core debt of the private non-financial sector and an improvement in various leverage ratios. The restructuring of the balance sheet has placed the companies in a sound position to expand their investment and become more resilient to economic shocks.


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