The Indian economy faces risks from the external sector, as foreign capital inflows could be hurt by US Federal Reserve monetary tightening while concerns about elevated global energy prices cloud the near-term outlook, the Indian Ministry of Finance said in a monthly report released on Saturday.
“On the one hand, the Federal Reserve continues to be aggressive in the fight against inflation, thereby signaling further interest rate hikes. This may lower capital inflows, increase pressure on the rupee to depreciate and make imports of essential commodities costlier,” the report said.
“On the other hand, an unfavorable global economic outlook is bound to moderate the growth of exports, affecting the country’s trade balance,” it added.
Photo: Reuters
Earlier this month, the IMF flagged headwinds for India and lowered its growth forecast by 0.6 percentage points to 6.8 percent for the year to March next year — the biggest downgrade among major economies after the US.
The rupee has fallen to its lowest on record against the US dollar, losing more than 10 percent against the greenback so far this year. The weakness has triggered concerns about rising costs to import commodities, including crude oil, a bulk of which India buys from abroad.
Inflation is hovering at about 7 percent, which is above the Indian central bank’s target range of 2 to 6 percent.
Photo: Bloomberg
The finance ministry report said there were signs that prices have peaked, with food inflation expected to moderate as the harvesting and procurement seasons progress.
That should contribute to a declining headline retail inflation in the rest of the fiscal year, it said.
Indian Prime Minister Narendra Modi’s Bharatiya Janata Party is heading into elections in his home state of Gujarat and in the northern state of Himachal Pradesh later this year amid continuing discontent over unemployment and high inflation.
General elections are due to take place in the first half of 2024.
Modi is under pressure to show that he is making progress on his election promise of creating millions of jobs. The country has seen sporadic violence over unemployment after angry young people blocked rail traffic and highways, and set a train on fire over a military recruitment plan.
Modi on Saturday handed employment letters to 75,000 people at a virtual event as he looks to tackle India’s soaring jobless rate.
“Central government is working on multiple fronts simultaneously to create more and more jobs,” Modi said at the event, which connected several cities across the country where his ministers were handing out appointment letters to young people.
Data from the Centre for Monitoring Indian Economy show that the unemployment rate has stayed above 6.5 percent since October last year.
The country added 1 million jobs in the formal sector last year. It recruited just 0.3 percent of the candidates who applied for permanent government jobs in the past eight years, highlighting the unemployment crisis.
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