India’s economy is showing resilience despite global uncertainties, with favorable monsoon conditions boosting agriculture and a strong performance in the services trade. However, the challenges of weakened global demand and ongoing geopolitical tensions, particularly the Russia-Ukraine conflict, present potential obstacles to export growth and financial market stability.

In its latest monthly review, the Finance Ministry highlighted that global economic conditions—such as changes in interest rates, earnings growth, and geopolitical developments—will continue to influence trade and capital flows.

The ministry’s report noted, “Apart from the emerging indications of domestic growth and stability, the dynamics of global interest rates, earnings growth and valuation, geopolitical developments, and policy decisions of the next administration in the United States will determine the course of trade and capital flows.”

It further explained that geopolitical tensions, especially the Russia-Ukraine conflict, have heightened financial market uncertainty, leading to increased demand for safe-haven assets like U.S. Treasuries and gold as investors seek stability.

“These fragile conditions continue to weigh on global markets and could impact India's trade environment,” the report added. “Recent developments in the ongoing conflict between Russia and Ukraine have caused some concern in financial markets with safe-haven assets such as U.S. Treasuries and gold finding a bid.”

The report also pointed out that India’s export growth may face hurdles in the coming months due to a decline in demand in developed economies. While merchandise exports are challenged by the global slowdown, the services trade sector remains robust, maintaining its positive momentum.

“On the external front, India’s export recovery may encounter challenges due to softening demand in developed markets. However, trade in the services sector is sustaining momentum,” the ministry noted.

Despite these global headwinds, India’s domestic economic outlook remains cautiously optimistic. Agriculture, in particular, stands to gain from favorable monsoon conditions, higher minimum support prices, and ample input supplies.

Improved agricultural production is expected to help moderate inflation, even with ongoing price pressures in certain food items. Early trends from November have already shown a reduction in some key food prices. However, the report warned that geopolitical risks could still influence inflation and disrupt supply chains domestically.

The report emphasized that recent indicators of economic activity in India have shown signs of recovery after a temporary dip during the monsoon. Indicators such as the Purchasing Managers' Index (PMI), E-way bill generation, and measures of rural and urban demand experienced a positive turnaround in October. Additionally, formal employment has grown, with an expanding workforce in manufacturing and a notable influx of young workers into organized sectors.

These trends underscore the strength of India’s domestic economy as it continues to navigate a challenging global landscape.

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