The finance ministry on Friday said economic growth concerns in China could trigger risk aversion in financial markets across the globe “that have begun celebrating, perhaps, prematurely, the easing of inflation pressures in the near-term in the developed world”.

A reality check on the part of stock markets in advanced nations “could bring back growth chills everywhere”, the department of economic affairs (DEA) said in its report for July. In a surprise move, Covid-hit China this week trimmed its interest rates, stoking fresh concerns about its growth prospects.

India, however, is better placed on the growth-inflation-external balance triangle now than it was two months ago, due to a raft of policy measures by both the government and the Reserve Bank of India, it said.

The report said, in absence of any further shocks, the downward movement of global commodity prices, along with the monetary and fiscal measures taken by India, will likely cap inflationary pressures in the coming months.

Moderation in inflationary pressure in India is further on the anvil, as global prices of key raw materials such as iron ore, copper and tin, that feed into the domestic manufacturing process, trended downwards in July, it added.

Nevertheless, the report acknowldeged risks emanating from tense geopolitical environment, which could trigger fresh supply concerns in the winter for critical commodities such as crude oil and natural gas.

Retail inflation in India hit a five-month low of 6.71% in July, against 7.01% in the previous month. However, it still remained above the upper band of the central bank’s medium-term target of 2-6% for a sixth straight month. It’s still much lower than the inflation level in even advanced economies, some of whom are witnessing price pressure in excess of 8.5%.

The report said barring further adverse shocks to commodity prices and thus India’s terms of trade, economic growth will consolidate and retain its momentum into 2023-24. The private sector and banking sector balance sheets are healthy and there is appetite to borrow and to lend respectively, it added.

India’s growth outlook for FY23, though lower than projections made before the Ukraine war, is still comfortably high and confirms the recovery of animal spirits and economic growth from the pandemic-induced contraction in 2021-22, it said. Moreover, despite global headwinds, the IMF has forecast India’s economy to grow at a robust rate of 7.4% in 2022-23, the highest among major economies, the report said.

The report said global investor confidence in India’s economic landscape is further endorsed by net foreign direct investment (FDI) inflows remaining robust at $13.6 billion in the June quarter, against $11.6 billion a year before.