MPC alters tone, embracing growth optimism for FY24

livemint.com:

Bank of India governor’s and MPC’s assessments of the fundamentals of the Indian economy, we remain cautious about the near-term outlook for growth. Our concerns are driven by the agriculture sector, amid the sharp decline in kharif output for major crops, and lag in rabi sowing, in the backdrop of seasonally low reservoir levels. We expect this to manifest into little-to-no growth in agri gross value added (GVA) in H2, with attendant, non-negligeable risks for rural consumption.

Besides, we are circumspect around the sustenance of government’s capex momentum, execution of projects, and the pace of private capex, in the run up to general elections. This is likely to have some bearing on construction activity, which had played an important role in driving GDP growth in H1 FY24. Additionally, we don’t expect a sustained turnaround in exports in the near term.

The surge in merchandise export growth print in October was largely driven by the shift in the holiday calendar in 2023 versus 2022, and thus, should be interpreted with caution and not extrapolated. In fact, this holiday effect obfuscates year-on-year (y-o-y) comparisons in October and November for most high frequency indicators, making it more meaningful to look at average yoy growth performance for these months. On inflation, the MPC expects a pick-up in consumer price index (CPI) inflation in November-December owing to an unfavourable base and food prices uncertainty, in line with our expectations.