‘Demand will pick up, spur capex as inflation recedes’

But, Finance Ministry also flags ‘downside risks to growth and upside risks to inflation’ in monthly economic review; cites uncertainties from the external sector and weather

The first month of 2023-24 has seen strong, albeit seasonally moderated economic activity, and demand is expected to strengthen in the wake of receding inflation, fuelling a virtuous investment cycle whose signs are already visible despite higher interest rates, the Finance Ministry said on Monday.

“There are downside risks to growth and upside risks to inflation, partly channelled through the external sector and partly originating from weather uncertainties. Yet a strong point going India’s way is the strength of its domestic demand,” it said in its economic review of April.

“Consumption has shown steady and broad-based growth, while investment in capacity creation and real estate is finding traction… As inflation further recedes, demand will become stronger and lay the foundation of a virtuous capex upcycle,” it emphasised, while conceding it is too early to forecast the entire year’s outcomes.

The Ministry said in the review that crops were unlikely to suffer despite uncertainties about the monsoon as reservoir levels were healthy.