India's food inflation is likely to ease, while the growth outlook for the economy is "cautiously optimistic" for the coming months as the agricultural sector is likely to benefit from favourable monsoon conditions, increased minimum support prices and adequate supply of inputs, according to the Finance Ministry's monthly economic review released on Monday.
India's retail inflation jumped in October 6.21 per cent, a 14-month high, driven by elevated food inflation in a few vegetables. Supply disruptions from heavy rains in major producing states contributed to price pressures on tomatoes, onions, and potatoes.
However, the bright agricultural production prospects make the inflation outlook benign, despite existing price pressures on select food items. Early November trends signalled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation and supply chains, the report states.
Amid a clouded global background, and after a brief period of softening momentum over the monsoon months, many high-frequency indicators of economic activity in India have shown a rebound in October.
These include indicators of rural and urban demand and supply side variables like the Purchasing Managers' Index and E-way bill generation, the report states.
On the employment front, the formal workforce is expanding, with notable increases in manufacturing jobs and a strong inflow of youth into organized sectors, it added.
As far as the external sector is concerned, the report states that India's export recovery may encounter challenges due to softening demand in developed markets.
However, trade in the services sector is sustaining momentum. Apart from the emerging indications of domestic growth and stability, the dynamics of global interest rates, earning growth and valuation, geopolitical developments, and policy decisions of the next administration in the US will determine the course of trade and capital flows.
Recent developments in the ongoing conflict between Russia and Ukraine have caused some concern in financial markets with safe-haven assets such as US Treasuries and gold finding a bid. Geopolitical conditions remain fragile, it added.
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