CEA warns of looming oil and rate pressures in India’s H2, sees Q2 growth at 7.3%

Chief Economic Adviser V Anantha Nageswaran warned on Wednesday that India's second half of the fiscal year would likely face challenges due to rising oil prices, increasing interest rates, and heightened global growth risks, as per a PTI report. However, he defended the economy's 7.8% GDP growth in the April-June quarter, citing credible data and momentum in key indicators like GST collections, credit growth, and exports.

Nageswaran stated that the July-August data indicated GDP growth of approximately 7.3%. Pointing out the challenging environment, he mentioned that September saw difficulties due to higher oil prices, with India's landed fuel cost reaching $117 per barrel, up from $80-85 in June-August. The higher oil bill added to the uncertainty around India's growth outlook, even as domestic economic momentum remained strong. The boost from GST rate cuts was still being felt, he added.

Nageswaran emphasized that the 7.8% GDP growth in the first quarter of FY27 was not "out of thin air," despite criticism that it did not fully reflect economic conditions. He pointed to GST collections, credit growth, and export figures in July and August as proof of ongoing momentum. He acknowledged that changes in GDP calculation methodology, including the double-deflation method, could have contributed around 30-40 basis points to the headline growth rate, as the import prices had risen sharply.

Inflation stood at 4.3%, within the RBI's 2-6% tolerance band, but the central bank would assess if the rise in prices warranted a monetary policy response. The RBI would also examine whether inflation pressures were limited to food and energy or had become more widespread. Several global institutions, including S&P Global Ratings, the Asian Development Bank, Fitch Ratings, and the OECD, raised their India growth forecasts for FY27, with the latter three raising their projections to 7%, above the RBI's 6.7% FY27 growth projection.