A sharp rebound in consumer spending and rising employment will sustain economic growth in India in the months ahead, the government said in its monthly economic review for August published on Saturday.
It said an increase in private consumption and higher capacity utilisation rates had helped private-sector capital expenditure reach one of its highest levels in the last decade.
Business investment has been encouraged by government spending which climbed 35% in April-August compared to the same period a year ago, the report said, adding that tax revenue growth for the government had been buoyant.
The report also said high levels of foreign exchange reserves, sustained foreign direct investment and strong export earnings have provided a reasonable buffer against monetary policy normalisation in advanced economies and the widening of the current account deficit arising from geopolitical conflict.
The Reserve Bank of India on Friday forecast the country's current account deficit would remain within 3% of gross domestic product in the current fiscal year to March 2023 and said it was "eminently financeable".
India is in a better position to calibrate its liquidity levels without abruptly stalling growth, the report said, adding that inflationary pressures in the country appear to be declining.
But it also said that in winter months, geopolitical tensions could climb amid a heightened international focus on energy security and that could test "India's astute handling of its energy needs so far."
"In these uncertain times, it may not be possible to remain satisfied and sit back for long periods. Eternal macroeconomic vigilance is the price for stability and sustained growth," it added.