In the midst of the ongoing global energy crisis emanating from the Middle East conflict, Pranjul Bhandari, Chief India Economist at HSBC, warns that India is facing a 'multi-nodal' shock where 'quantity constraints' on natural gas and LPG may pose a more significant threat to the nation's economic growth than inflation.
Speaking to NDTV Profit, Pranjul noted that markets have largely priced in the immediate price spikes. However, from a long-term perspective, "growth impact is looking bigger than the inflation impact".
"At some point, they will start pricing in more of the growth impact as well. And I think this is very important for India because so far we have been thinking about this as an oil price shock, you know, oil prices go up. But we know at home domestically that it's more than an oil price shock," he said.
Bhandari outlined two distinct potential paths for the Indian economy:
The $80 Barrel Scenario: If oil averages between $80 and $85, Bhandari expects a "manageable" growth rate of 6.3%.
The $100 Barrel Scenario: Should oil average $100 through 2026, growth could dip to the "five-and-a-half percent ballpark" as "quantitative constraints... make the growth drag a lot more brutal".
To mitigate these risks, Bhandari advocated for a "neutral" policy approach. "Good burden sharing of the oil shock between government and the private sector is the healthiest when you're having a big global growth shock," she said.
"Inflation is not the major worry for me. I think for me the two main worries are what happens to growth if all of these quantitative restrictions continue, and second, what happens to capital inflows which have been very weak and have been weighing on the currency," he added.
Regarding monetary policy, Bhandari urged the Reserve Bank of India (RBI) to remain cautious. "The bar for RBI rate hikes is high and RBI should wake and wait and not rush into it," she stated.
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