Recession Risks May Reappear In 2024: India's Finance Ministry

In its monthly review, the Finance Ministry has said that recession risks may reappear in 2024. The ministry's warning about a potential recession comes in the backdrop of current uncertainties linked to rising food and energy prices amidst geopolitical tensions. It said that Inflation has kept both the government and the RBI on high alert.

The monthly economic review for October 2023 said, "Global trade numbers for 2023 are, however, expected to remain weighed down as world merchandise trade volume is expected to decline, as reflected in the WTO's October 2023 Global Trade Outlook and Statistics." A decrease in global merchandise trade volume, as indicated by the World Trade Organization's (WTO) October 2023 report, is expected to impact global trade figures. India, in October, witnessed a record trade deficit, fueled by increased value imports and reduced exports.

Gold and silver imports almost doubled in October 2023 compared to October 2022, signaling the robust demand during the festival season. Yet, cumulative estimates for the trade deficit, on the back of slowing merchandise and service imports, show a considerable decline in April-October 2023 over the corresponding period of 2022.

Despite fears of weak global demand, India's merchandise exports and imports registered a YoY growth of 6.3% and 12.4%, respectively, during October 2023. This resulted in a widening of the merchandise trade balance on both YoY and MoM basis during the month. Commodities driving exports during October 2023 include iron ore, ceramic products, glassware, tobacco, cereal preparations, and processed items, among others.

Exports of engineering goods rose by 7.3% in October 2023 compared to the corresponding period of the previous year. Imports were driven by pulses, gold, and silver, among other commodities. For April-October 2023, the merchandise trade balance improved by 12% due to a considerable decline in the merchandise value of imports, especially POL imports, which reduced from US$123 billion in April- October 2022 to US$99.9 billion in the corresponding period in 2023.

FPI Inflows:

Foreign portfolio investment (FPI) witnessed net positive inflows during FY24 (till 16th November 2023) as compared to net outflows during the corresponding period last year. This is mainly on account of the strong macroeconomic fundamentals of the Indian economy indicated by lower volatility in the Indian rupee, moderation in inflation, fiscal consolidation,
etc.

Outlook

The government's sustained investment push, healthy corporate profits, and a reduction in bank non-performing loans will likely keep investment buoyant despite elevated input costs. India's exports are also expected to perform well, driven by strong performance in services exports.

On the inflation front, the decline in international crude oil prices and continued moderation in core inflation are likely to control inflationary pressures going forward. Recognizing this, RBI has also indicated that any further tightening of monetary policy will likely occur when the transmission is closer to completion and if the situation warrants.

Inflation is one of the downside risks that has kept both the government and the RBI on high alert. Financial flows in the external sector also need constant monitoring as they impact the value of the Indian Rupee and the balance of payments.