There are more downside risks to India's growth given the challenging situation rising on the global backdrop, said Pranjul Bhandari, chief India and Indonesia economist at HSBC Global. Bhandari pegs India's growth rate for the financial year 2026 at 6.5%.
Generally, in this scale of uncertainty, when one doesn't know what development or announcement is coming next in the international landscape, foreign direct investment flows pause. If the global environment remained challenged, India would also have a problem, she said.
India has a disappointing growth number of 5.4%. In the December quarter, Bhandari expects India to grow at 6% due to some improvement in government spending; agricultural production has picked up. Now, if the monetary policy starts stimulating, India will move to 6–6.5% growth. For more growth than that, the labour-intensive sector needs to accelerate, Bhandari said in an interview with NDTV Profit.
India has seen growth in exports in high-technology sectors, which are not so good for jobs. Where the country hasn't done well is in the mid-to-low technology sectors like textiles, food processing, and furniture. Now, the challenge is to get FDI into these sectors to plug into Asian supply chains. These supply chains will likely get re-jigged with new tariffs in the global scenario.
Bhandari said that India can see this challenge as an opportunity and utilise it to be part of the global value chain to accelerate its position.
HSBC Sees Rate Cut By RBI From February
Pranjul Bhandari, Chief India & Indonesia Economist, HSBC
Pranjul Bhandari, Chief India & Indonesia Economist, HSBC
HSBC Global estimates two cumulative rate cuts of 25 basis points, one in February and April, Bhandari said. To balance the budget, a rate cut is required somewhere.
Allocations in certain ministries and schemes were a little less. There has to be a cut in current expenditure to make space for the consumer stimulus. Adding all of this, it's actually a neutral budget, she said.
It's very important for the Reserve Bank of India because the central bank is dealing with the neutral fiscal impulse, falling inflation, which opens the space for the RBI to stimulate, Bhandari said.
Now, the RBI can stimulate in the couple of ways. Number one is through rate cuts. The central bank can also infuse liquidity into the system, which has started already. Third, there could be some regulatory easing on NBFCs norms, Liquidity Coverage Ratio norms. Fourth can be exchange rate. There are already steps to make the exchange rate flexible, which is a 'fantastic' thing to keep India's exports competitive, she said.
These four things will allow the central bank to stimulate the economy where the fiscal was not able to do because it was tasked with the macro stability, Bhandari said.
View On Capex Allocation In Budget FY26
It's a period of fiscal consolidation for India. Hence, when the Government is giving money to someone, it's cutting somewhere. Here, markets has to be mindful of sector rotations or market rise, Bhandari said.
For four years in a row, India had an average capex growth of 30%. India maxed out on growth in roads and railway infrastructure. It's challenging to keep increasing money there. The capacity on the ground is not rising in line with that. So, this time, the Government has focused on other aspects of capex like urban development, housing, loans to states. They are new, fledging portions of capex pie. These will take time to pick up, she said.
India Adhering To Fiscal Consolidation Stands Out
For Bhandari, what stands out in India's budget for the financial year 2026 is the government trying to bring down the fiscal deficit to 4.4% of GDP from 4.8%. This will preserve macro stability for India, which is important at a time when the global environment is volatile, Bhandari said.
While India adhered to a fiscal consolidation path, the government made a choice to boost consumption. It was focused on middle-class consumption. This is the part of the economy the government chose to stimulate. It was a difficult choice, but they came out on the right side, Bhandari said.
In a very difficult backdrop, the budget for 2025–26 was presented. On one hand, there are so many uncertainties in the global backdrop, which calls for the macro-stability to be maintained. On the other hand, India is facing weak growth domestically. Policy stimulus was expected. How to balance both? It wasn't an easy task to do this budget. It has come out on the conservative side, which was the right thing to do, she said.
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