India's economic outlook 'cautiously optimistic' for months ahead: Finance ministry in October review

India’s economic outlook for the months ahead remains “cautiously optimistic,” buoyed by strong agricultural prospects and a resurgence in economic activity after a monsoon-induced lull, the finance ministry said in a report.

Favourable monsoon conditions, higher minimum support prices (MSPs), and an adequate supply of inputs have set the stage for a bumper rabi season, according to the monthly economic review for October 2024.

The record production of kharif crops, estimated at 164.7 million tonnes, marks a 5.7% increase over the previous year and is expected to tame food inflation in the coming months.

"Bright agricultural production prospects make the inflation outlook benign, despite existing price pressures in select food items," the report said.

After softening during the monsoon months, October witnessed a resurgence in economic activity, as indicated by high-frequency indicators like E-way bill generation, Purchasing Managers’ Index (PMI), and improved rural and urban demand.

FMCG sales volumes showed robust growth in rural and urban areas during Q2 FY25, as per NielsenIQ data.

Festive demand drove E-way bill volumes to a record high, while passenger vehicle sales surged by 32.4%, according to the Federation of Automobile Dealers Associations (FADA).

Two-wheeler and tractor sales recorded YoY growth of 11.8% and 22.4%, respectively, bolstered by rural demand and a healthy monsoon.

The ministry remains optimistic about the near-term inflation trajectory, as early November trends indicate easing in key vegetable prices like tomatoes and onions. However, global factors such as edible oil prices and geopolitical disruptions will influence the inflation outlook.

Recent developments in the ongoing conflict between Russia and Ukraine have caused some concern in financial markets with safe-haven assets such as US Treasuries and gold finding a bid, it said, adding, that geopolitical conditions remain fragile.

The report said the global economy reveals a mixed outlook as 2024 draws to a close.

Structural weaknesses in parts of Europe and China's slowdown continued to weigh on growth. In contrast, the US economy has surpassed earlier expectations, maintaining steady expansion.