India's economic growth could remain above 7% in fiscal 2027 despite a moderation in the second half, as rising costs, elevated crude oil prices, and uncertainty over consumption weigh on the outlook, said Radhika Rao, executive director and senior economist at DBS Bank, while speaking to NDTV Profit.
Rao said India's strong performance in the first half should support full-year growth, although the second half could be more subdued as the economy faces a less favourable base of comparison.
Consumption Faces Pressure From Rising Costs
Indian companies are dealing with rising input costs and uncertainty over consumer demand, Rao said. Auto sales and goods and services tax collections could also show slower growth as the economy compares with a stronger period last year, when tax measures and easier financial conditions supported activity.
The impact of higher oil prices has not fully reached households, as the government has absorbed much of the initial shock. However, rising prices of cereals, edible oils, sugar, and other commodities could put further pressure on household purchasing power.
Rao said the cost pressures building up in the economy were increasingly moving closer to consumers, raising concerns about the consumption outlook in the coming months.
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Crude Oil Could Keep Pressure On Rupee
India continues to face challenges from elevated crude oil and fuel prices, even as some oil supplies from the Gulf have recovered. Rao also taked about the three-fourths of the earlier supply disruption that had been reversed, but gas and other fuel products remained under pressure.
With crude prices above the levels assumed in the Reserve Bank of India's projections, the burden of absorbing the shock could fall on the currency or interest rates.
RBI's recent commentary on the relationship between financial stability and monetary policy could indicate a greater willingness to consider interest rate increases than markets currently expect.
Policy Response May Need To Last Longer
Rao said India's policymakers have responded quickly to successive economic shocks, but the duration of the current uncertainty could require a broader response.
Rather than treating the disruption as a short-term event lasting two to three weeks, policymakers may need to prepare for a period of six months to 18 months, she said.
The evolving global environment, including geopolitical tensions and energy market volatility, will remain important for India's growth, inflation, and currency outlook.
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