India's rural demand set to recover, inflation to soften: Ministry

Rural demand was buffeted by the pandemic followed by high global inflation.

“Kharif sowing supported by the southwest monsoon, coupled with a higher minimum support price for kharif crops, is likely to enhance rural demand. Urban consumption is expected to benefit from the demand for contact-intensive services, improving performance of corporates, and growing optimism of consumers,” the MER for July noted.

The services sector, which was affected the most by the pandemic, can emerge as a key growth driver, buoyed by the release of pent-up demand, easing of mobility restrictions, and near-universal coverage in COVID vaccination, the report noted.

“The robust production of capital goods, along with the government's capex push and a large expansion in bank credit, will uphold the investment activity. The manufacturing sector is expected to gain from easing of input prices and a rise in consumer demand during the festive season,” the MER stated.

The country’s financial sector is proving to be a ‘pillar of resilience’, it said.

Due to the ongoing war in Ukraine and recessionary fears among developed countries, global macroeconomic headwinds continue, it said.

“It is not necessarily the right thing to do to project either optimism or pessimism too far ahead in these uncertain times. For now, India looks better placed on the growth-inflation-external balance triangle for 2022-23 than it did two months ago,” the report said.

The tense and fraught geopolitical environment could trigger fresh supply concerns in the winter for critical commodities, and without further considerable policy tightening, it is tough to see the inflation rate in the advanced world drop to 2-3 per cent, it added.

Fibre2Fashion News Desk (DS)