Global inflation will remain higher than pre-pandemic levels, warns Finance Ministry

With a slowdown in global growth giving rise to concerns about a global recession, most commodity prices have been easing since June 2022. In January 2023, however, they remained elevated compared to pre-pandemic levels, prolonging energy and food insecurity challenges. Crude oil prices have steadily declined from their mid-2022 peak but remain higher than pre-pandemic levels, the Finance Ministry said in its latest Monthly Economic Review (MER) on Thursday.

In the MER, the Ministry said that India's policy regime must continue to be effective to ensure the country's economic growth stays on course with macroeconomic stability.

"The Union Budget for FY24 has ensured macroeconomic stability by budgeting a fiscal deficit of less than 6 percent of GDP." "The budget has also announced key interventions to support the high growth of the Indian economy and bring weaker sections of society into the mainstream," the MER said.

The Indian economy is estimated to post healthy growth in FY23, as projected by the first advanced estimates (FAE). The service sector is also expanding and driving economic activity. As per the FAE, the GVA in the services sector is estimated to grow by 9.1 percent YoY compared to 8.4 percent in FY22. The sector's growth is expected to be fueled by a 13.7 percent YoY increase in the contact intensive services sector, which grew by 11.1 percent in FY22.Furthermore, the share of the services sector in overall GVA is the second-highest since 2012–13. The performance of high-frequency indicators in the service sector validates these estimates, the report stated.

"Overall demand conditions remain conducive to carrying forward the momentum built up in the economy," the report noted. It further said: "The year 2022 witnessed the global economy operating in an extremely challenging macroeconomic environment."

On geopolitical headwinds, the MER said that "the geopolitical tensions in Europe, spiralling energy, food, and fertiliser prices, monetary tightening, and inflationary trends have elevated the downside risks to the global economic outlook." Despite these headwinds, the Indian economy is estimated to grow by 7.0 percent YoY in FY23, as per the FAE. The performance of HFIs in December 2022/January 2023 indicates that the economy is well on track to achieve this growth.