India’s fiscal position remains solid with steady revenue growth, and headline inflation is likely to remain within the target band, the government said on Monday.
“Revenues generated from direct and indirect taxes have exhibited steady growth and are indicative of the strength of underlying economic activity and a broadening tax base,” India’s finance ministry said in its monthly economic review for September.
India is targeting a fiscal deficit of 5.9% of GDP for the financial year-ending March 2024.
“Rationalisation of revenue expenditure has enabled the front-loading of capital expenditure while keeping the market borrowing programme tied to the budgeted target,” the report said.
A Reuters poll last month projected India to be the fastest-growing major economy this fiscal year, supported by government spending ahead of next May’s general election.
Headline inflation was also likely to remain within the target band, the report said, due to the downward trajectory observed in core inflation.
India’s retail inflation eased to a three-month low in September on the back of softer vegetable prices, but remained above a 4% target that the central bank has signalled would be key before easing rates.
“Downside risks, especially emerging out of the vagaries of rainfall and global headwinds are however non-negligible,” the report said.
While sluggish global demand is affecting India’s trade, this is projected to recover in the second half, said the report adding that India’s forex reserve position is “comfortable” and external account “robust”.