HSBC’s Chief India Economist Pranjul Bhandari has trimmed India’s gross domestic product (GDP) growth estimate due to the energy shock from the West Asia conflict. If oil prices average $80 per barrel this year, growth could slip to 6.3% from an earlier estimate of 7%. However, if crude prices remain elevated and average closer to $100 per barrel, growth could slip below 6%.She added, “We have a 70 basis points cut if oil averages $80 a barrel.”Bhandari added that the burden of rising oil prices is currently being largely absorbed by the public sector, including oil PSUs and the government through excise duty cuts. This has helped shield consumers and businesses from immediate impact.
However, she indicated that such an approach may not be ideal, as concentrating the burden on the government could weigh on overall growth. A more balanced sharing of costs across the economy would likely reduce the overall economic impact.Despite higher crude prices, inflation is not seen as the biggest risk. HSBC expects inflation at around 4.5% if oil averages $80 per barrel, slightly above earlier forecasts which was 4%, but still within a manageable range.Watch the accompanying video for moreIndia’s flexible inflation targeting framework gives the RBI room to tolerate temporary spikes, especially in a supply-driven shock. Lower starting inflation and changes in consumer price index (CPI) composition are also helping cushion the impact.The external sector remains a concern. With both capital flows and the current account under pressure, India’s balance of payments could weaken further this year.At the same time, the Reserve Bank of India appears to be allowing the rupee to adjust more freely to market conditions. While depreciation has picked up, it is broadly in line with other Asian currencies, suggesting that the move is part of a global trend rather than a country-specific issue.“This is a global shock. It’s not like 2013 when India was an outlier,” she said, adding that gradual depreciation is manageable.Follow our live blog for more stock market updatesDisclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
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