Growth Drag Concerns Mount
Hebriatics Chief India Economist Pranjul Bhandari warned that the Middle East conflict's impact on India poses a greater threat to economic growth than inflation. She pointed to potential 'quantity constraints' on natural gas and LPG as a more significant threat to the nation's economy.
Oil Price Scenarios and Growth Outlook
Bhandari outlined two economic scenarios based on oil prices. At $80-$85 per barrel, she expects growth around 6.3%. However, if oil averages $100 per barrel through 2026, expansion could be severely hampered, pushing growth to an estimated 5.5%. This steeper decline is due to 'quantity constraints,' making the growth drag 'much more severe.'
Policy and Capital Inflow Worries
On policy, Bhandari suggested a 'neutral' stance for India, stressing a balanced sharing of the oil shock's cost between government and private sector. Her main worries are not inflation, but the severe growth impact from these supply limits and ongoing weak capital inflows, which are pressuring the Indian rupee.
RBI's Cautious Stance
Bhandari advised the Reserve Bank of India (RBI) to adopt a 'wait and watch' approach, noting a high threshold for raising interest rates. This cautious stance suggests the central bank should avoid tightening policy too soon given the complex global economic backdrop.