Finance Ministry on Tuesday said that the Indian economy is well prepared to absorb any upcoming external shock in terms of capital outflow induced by an uncertain geo-political environment, however inflation remains a concern.

The report said India has adequate forex reserves to absorb any upcoming external shock.

“Notwithstanding global developments, India’s forex reserves also stood at record high and large enough to finance more than 12 months of import,” The report added.

The report said despite the challenges, India’s external sector exhibits signs of resilience with robust growth in merchandise exports, which increased to $374.8 billion during April 2021 – February 2022.

However it warned that high energy and commodity prices may pose upside risk to the inflation outlook in the near- medium term.

For the coming fiscal year 2022-23 RBI has projected CPI inflation at 4.5%. The report says that this requires close monitoring.

“Recent increase in prices of food and energy commodities and metals warrants continued vigil on the inflation front,” the monthly economic report said.

Going forward the ministry added that the various economic indicators suggest that India will continue to grow in the next financial year and enhanced capital expenditure will further boost the growth and employment through multiplier effect.

“The sustained rise in Capex is expected to pump prime private investment and demand. This is evident from capacity utilisation recovering to 68.3 per cent in Q2:2021-22, as compared to 60.0 per cent in the previous quarter,” report said.

Capital expenditure increased by 22.0 per cent YoY during April 2021-January 2022 and stood at Rs. 4.4 lakh crore in April-January 2021-22 compared to Rs. 3.6 lakh crore in the corresponding period last year.


The report said despite global geopolitical headwinds, recovering consumption demand has catalyzed a healthy investment scenario in the economy. The second Advance Estimates of GDP for 2021-22 has projected consumption to surpass the level in the pre-pandemic year of 2019-20.

Recently Moody’s Investors Service has upgraded India's GDP growth estimate to 8.4% for 2022-23, while Fitch Ratings has projected the growth at 10.3% for 2022-23.

However, the ministry cautions that high oil prices may dampen these growth estimates.

“Recent sharp increase in the price of crude oil, if sustained well into the new financial year, will pose downside risk to these growth estimates,” the monthly economic report by the Finance Ministry said, suggesting close monitoring on the inflation front.

Finance ministry expects oil prices to cool down.

“Given the inherently unsustainable nature of high prices, international commodity prices are expected to level off early with an increase in supplies outside the crisis zone,” the report said.

Some key observations:

1. Forex reserve enough to finance over 12 months of import
2. high energy and commodity prices may pose upside risk
3. Energy and metals warrants continued vigil on inflation
4. Spiking crude oil will pose downside risk to growth in FY2022-23
5. International commodity prices are expected to level off early
6. Capex is expected to pump prime private investment and demand

Originally Posted: https://economictimes.indiatimes.com/news/economy/indicators/economy-is-well-prepared-to-absorb-any-upcoming-external-shock-finance-ministry/articleshow/90230419.cms

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