The Bank of Baroda in a report has said that India’s growth story is expected to maintain its resilience led by festival demand. This is expected to pump up growth in this quarter. Inflationary concerns ebbed slightly as major price data showed signs of respite with vegetable prices correcting in September 2023, as well as October 2023.
The report monthly chartbook-India economics, however, stated that near-term risks to inflation stem from the uncertain geopolitical environment and its likely impact on oil prices and below-normal rains. 10Y benchmark yield movement was striking in October 2023 with a 13bps jump (till 10 October).
"A major sell-off was seen post-monetary policy with RBI’s announcement of OMO sales. Going forward, pressure on domestic yield will persist. Even INR has remained under pressure due to global risk-off sentiment," the report added.
Domestic demand to remain buoyant:
Domestic demand indicators are expected to improve in the coming months on the back of festive demand. The service sector has been exhibiting strong growth as reflected by services PMI, pickup in vehicle registration and railway freight traffic.
"Consumers turned optimistic as reflected by RBI’s consumer confidence (the current index climbed to a four-month high) from 116.6 to 122.3. On the rural front, uneven distribution of rainfall has resulted in below-normal rain this season," BoB report mentioned.
Notably, the erratic monsoon has resulted in lower reservoir levels which might be a challenge for winter crops. On the other hand, kharif sowing ended marginally higher while pulses sowing lagged behind.
Talking about the health of the centre’s finances, it added that the fiscal deficit ratio (percentage of GDP, 12MMA basis) of the central government inched down to 6.4 per cent as of August 2023 from 7.1 per cent as of July 2023, led by steep revival in revenue receipts.
On a financial year-to-date basis (April to August 2023), the government's net revenue receipts rose by 24.1 per cent, from 0.7 per cent growth seen till July 2023.
This was driven by an improvement in gross tax collections (16.5 per cent versus 2.8 per cent). Within this, direct tax receipts jumped by 26.6 per cent (-1.1 per cent as of July 2023) and indirect tax collections were up by 7.8 per cent.
On the other hand, spending momentum slowed (20.3 per cent versus 52 per cent as of July 2023), led by both revenue (14.1 per cent versus 15.9 per cent) and capital expenditure (48.1 per cent versus 52 per cent). "We expect spending momentum to pick up pace during the festive and election months," it estimated.