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Government has said that the inflation trajectory is likely to be determined by extreme weather conditions like heatwaves and the possibility of an El Nino year, volatility in international commodity prices and pass-through of input costs to output prices.

In its monthly economic review for the month of February 2023, released on Monday, the finance ministry, quoting forecasts by various international organisations, has said that inflation in India will moderate in 2023-24 compared to 2022-23, and is likely to remain in the range of 5 per cent to 6 per cent, with risks evenly balanced.

"The Russia-Ukraine conflict and tightening of monetary policy have again brought the issue of corporate debt vulnerabilities to the fore. This is after the Covid-19 pandemic had directly impacted the balance sheets of the corporate sector globally, which were already highly leveraged," it noted.

With back-to-back shocks, the risk of a spillover of the stressed balance sheets of the corporates to the balance sheets of financial institutions has risen, the review said.

"With a manageable current account deficit and a growth rate highest among the major economies in 2022-23, the Indian economy has shown a new-found resilience in sailing through the turbulence caused by the pandemic and
geopolitical stress," the document noted.

"Analysis, however, reveals that India is one of the few countries that has a lower corporate debt as a percentage of the GDP in the third quarter of 2022 as compared to the corresponding quarter in 2008. Apart from the lowering of debt coinciding with the deleveraging phase in the credit cycle, a declining trend observed since mid-2021 is a reflection of a relatively less debt-financed strong recovery of India's economy. Consequently, the quality of corporate debt has been showing steady improvement as assessed by an improvement in the CareEdge Debt Quality Index (CQDI) since November 2021. India's corporate sector credit-GDP ratio is also below its historical trend, indicating ample space for the corporate sector to enlarge its debt burden," the finance ministry's review said.

The strong debt profile of the corporate sector has proven to be key in maintaining the macroeconomic stability of the economy, it said further.

"Macroeconomic stability is likely to receive a further boost in FY23 as the current account deficit is set to narrow from the year-beginning estimates," the finance ministry noted, adding that the jump in net service exports over the previous year is a critical development as India increases its market share in both IT and non-IT services, whose demand has been triggered by the pandemic. Imports are also less costly now with the easing of global commodity prices.