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India's growth outlook has improved on the back of resilient domestic demand, stronger trade momentum and a pickup in public and private investment, while rising food and energy prices could push the Reserve Bank of India towards tighter monetary policy, S&P Global Economist Vishrut Rana said in an exclusive conversation with ANI.
S&P Global in its latest forecast has upgraded its growth projection for India to 7 per cent for the current fiscal year. Rana said economic activity has been stronger than expected over the past quarter and the outlook is more favourable compared with three months ago. We see a pickup in trade momentum, particularly on the electronics goods side, but also in terms of refined fuel products, also supporting activity. In addition, investment, especially from the public sector, but also private investment, is picking up somewhat. All of those factors combined to give us a sense that growth was likely to pick up in India and as a result, we have upgraded our projection, Rana said. He said domestic demand has remained resilient despite the West Asia crisis and the energy price shock. There has also been a pickup in trade momentum, particularly in electronics goods and refined fuel products. Public investment has continued, while private investment has also shown some improvement, supporting the broader economic outlook. Our base case is that domestic demand and investment continue through the rest of the fiscal year, Rana said. He said 7 per cent growth is achievable for FY27, while the medium-term growth outlook remains around 6.8 per cent. The improved growth outlook, however, comes alongside rising inflation risks from food and energy prices. S&P Global expects the RBI may raise the interest rate by 25 basis points to 5.5 per cent in the current fiscal year before easing policy in the upcoming fiscal. Rana said the expected rate increase is linked to food prices, energy prices and continuing pressure on the rupee. The key challenge for the RBI is balancing domestic demand versus inflation when you have these supply-side shocks, Rana said. He said the energy shock has fed strongly into producer prices, while its impact on consumer prices has so far been more limited due to policy measures and state refiners absorbing some of the costs. However, the shock is spreading through the economy. S&P Global expects inflation at 5.1 per cent, with inflation likely to remain elevated and above the midpoint of the central bank's target. Agriculture is another risk to the outlook. Rana said an ongoing El Nio and deficient monsoon could affect crop yields, even though sowing remains on target. This could put pressure on food prices during the winter. He said agriculture remains an important part of the Indian economy despite its declining share, and S&P Global expects the sector to grow much slower than the overall economy. The impact could extend beyond farm output if higher food prices reduce household purchasing power. The bigger risk from agriculture is really the food prices, Rana said, adding that elevated food prices can eat into household budgets and affect consumer demand. Energy costs are also a concern for businesses. Higher energy prices can increase production costs and squeeze corporate margins, creating another drag on economic activity. Rana said these factors help explain why growth is expected to moderate from the current 7.8 per cent growth rate to 7 per cent for the full fiscal year. Despite these risks, domestic demand is expected to remain broadly resilient through the rest of the fiscal year. The key policy challenge will be managing inflationary pressures from food and energy without undermining the demand and investment momentum supporting India's growth outlook. (ANI)
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