Bumper Kharif Harvest To Lower Food Inflation, Outlook Cautiously Optimistic: Finance Ministry

The bumper harvest of kharif crops is expected to bring down food inflation in the "coming months", according to a report released by the Finance Ministry's Department of Economic Affairs on Monday.

"Moving forward, India's economic outlook for the coming months is cautiously optimistic, with agriculture likely to benefit from favourable monsoon conditions, increased minimum support prices and adequate supply of inputs," the DEA stated in its monthly economic review for October 2024.

The adequate reservoir levels due to strong monsoon, combined with higher minimum support prices, are likely to boost sowing and production of crops in the rabi season, it added.

While pointing towards a likely softening in food prices in the near future, the DEA noted that inflation this category pushed the overall retail inflation higher last month.

"Domestic retail inflation rose in October driven by elevated food inflation in a few vegetables. Supply disruptions from heavy rains in major producing states contributed to price pressures in tomatoes, onions, and potatoes, while elevated global prices drove up oil and fat inflation," it said.

Notably, India's consumer price index-based inflation rose to a 14-month high of 6.21% in October, lifted by a 10.9% spike in food inflation, as per the official data released earlier this month. The core inflation, that excludes volatile food and fuel prices, stood at 3.7%.

After a brief moderation over the monsoon months, economic activity "firmed up" in October, the DEA said. The labour market is showing signs of growth, as evidenced by high-frequency indicators such as net payroll additions under the Employee Provident Fund Organisation, it added.

In terms of demand, the pace of growth has been higher in rural regions as compared to their urban counterparts, the report pointed out.

"Rural demand has been particularly striking as reflected in the robust growth of two-wheeler sales and record-high tractor sales in October," it said.

On the supply side, the purchasing managers’ index for manufacturing and services indicated strong activity in the secondary and tertiary sectors, the DEA said.

As 2024 draws to a close, the global economy reveals a "mixed outlook", the report said, as it pointed towards "structural weaknesses" in parts of Europe and China's continued slowdown that weighs on its growth. In contrast, the US economy has surpassed earlier expectations, maintaining steady expansion.

Set against this background, "India quietly holds its ground", the DEA said. It pointed towards the country's merchandise exports, which witnessed a moderate growth during the first seven months of fiscal 2025, despite weak external demand.

The report noted that there is a gradual shift underway from goods to services in global consumption. This shift is boosting activity in the services sector in both advanced and emerging markets while slowing down manufacturing, it said.

"Manufacturing production is increasingly shifting towards emerging market economies, as advanced economies experience a decline in competitiveness," the report added.

The recent global developments, however, have resulted in a significant outflow of foreign investments from India's equities market, the DEA said. "After witnessing net inflows for five consecutive months, foreign portfolio investors became net sellers in October. Heightened geopolitical tensions and recent developments in China led to withdrawal of significant funds from Indian equities."