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Inflation risk more persistent than growth shock, says Tanvee Gupta Jain amid oil price surge
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The ongoing geopolitical tensions in West Asia and their ripple effects on global energy markets are beginning to weigh on India’s macro outlook, prompting a downward revision in growth estimates and a reassessment of inflation risks, according to Tanvee Gupta Jain from UBS Securities.Speaking on ET Now, she underlined that the Middle East conflict represents “a historically large energy shock with an asymmetric macro risk,” adding that high-frequency indicators are already signalling a moderation in momentum.Growth momentum softens as activity indicators weakenGupta Jain pointed to internal indicators tracking economic momentum, noting a divergence between demand and activity trends.She said, “As you rightly pointed out, this Middle East conflict represents a historically large energy shock with an asymmetric macro risk. In fact, we have a lead indicator known as UBS India Composite Economic Indicator, which is basically a compilation of 15 high frequency data points on India. And this is telling me that for the month of March, economic momentum has started to moderate.”However, she highlighted resilience in consumption demand even as broader activity cools.“If I look at the auto sales data for the month of March, even for the month of April, the demand indicators are actually holding up. The activity indicators have started to moderate and that is where the problem is because supply disruptions is having a disproportionate impact on selective sectors.”GDP forecast cut to 6.2%, downside risks remain openThe growth forecast has been revised downward, incorporating both external energy shocks and domestic monsoon uncertainty.“We are now estimating GDP growth from 6.7% which was our estimate earlier to 6.2%. This is almost 50 basis point below consensus and this is actually taking into account both the external shock on account of the energy and as well as monsoon related uncertainty,” she said.She added that scenarios remain highly fluid:“In case the conflict deescalates quickly and from June onwards we start to see oil starting to flow through the Hormuz, there will be upside towards 6.5% to my GDP growth forecast. But in an extended energy shock scenario where say oil is at $150, eventually India's GDP can even slow down to 5–5.5%.”Supply-side stress visible; demand impact likely delayedOn transmission of shocks, Gupta Jain noted that supply-side disruptions are already visible in data, while demand tends to respond with a lag.“I can clearly see fertiliser production contracting by nearly 25% year-on-year. We did realise that now the gas supply to the fertiliser sector was actually adjusted higher in the month of April, so that would have provided some relief,” she said.She added that demand resilience may not last indefinitely if supply pressures persist.“Supply disruptions at least in the data is already visible. Demand side data points when you start seeing a slowdown, it should happen with at least a quarter lag.”Inflation concerns rise; CPI forecast revised upwardWhile growth risks remain significant, inflation appears to be the more persistent macro challenge.“Even if there is a quick deescalation, the inflation concerns could linger a bit longer than the growth concerns,” she said.The CPI inflation forecast has been revised higher.“We have also revised our CPI inflation forecast from 4.6% which we were estimating earlier to 5.2%. This is reflecting both higher energy prices plus the broader spillover from the Middle East conflict.”She flagged multiple inflationary triggers already visible:“Airfare prices have started going up driven by elevated ATF prices, prices because of higher commercial LPG cost, there are supply chain disruptions on the ground. Rupee has underperformed and there are inflation risks coming because of weaker INR.”Fiscal pressure manageable, but risks of overshoot remainOn the fiscal side, Gupta Jain said policy response has leaned more on fiscal tools in the current global stagflation-like environm
As global risks threaten growth and stoke inflation, early signs of strong pre-monsoon rainfall could provide a domestic cushion by boosting farm output and easing food prices.The India Meteorological Department (IMD) on Friday forecast above-normal rainfall in May and a timely arrival of the southwest monsoon over the Andaman and Nicobar Islands—developments that could lift rural demand, support farm output and add momentum to economic growth."Our forecasting system show that conditions for the arrival of the south-west monsoon are becoming favourable between May 15 and 20," said Mrutyunjay Mohapatra, director general, IMD, while adding that the country is likely to receive above-normal rains in May.The weather forecaster is likely to announce the onset date for monsoon in the second week of May.Rainfall cushionA favourable start to the monsoon cycle is critical for India’s economy, where agriculture accounts for 15-16% of GDP and supports nearly 46% of the population. Strong rainfall typically boosts farm incomes, lifts rural consumption, and helps ease food inflation, improving overall purchasing power.Economists estimate that a good monsoon could add 20–40 basis points to India’s GDP growth, currently projected at 6.5–6.8% for FY27, according to the Reserve Bank of India and multilateral agencies such as the International Monetary Fund.These projections have come under pressure amid the fallout of the West Asia conflict, which has disrupted energy and food markets and raised the risk of higher inflation and slower consumption.Retail inflation edged up to 3.4% in March from 3.21% in February, reflecting a rise in food and energy prices following the West Asia conflict. While the reading remains below the Reserve Bank of India’s medium-term target of 4%, the uptick suggests emerging price pressures.The IMD’s May outlook reinforces expectations of an early boost to the kharif sowing season. With rainfall projected at over 110% of the long period average (LPA) of 61.4 mm, soil moisture levels are likely to improve, enabling timely land preparation and early sowing of crops such as paddy, pulses and oilseeds, particularly in rain-fed regions."The rainfall during May, 2026 averaged over the country as a whole is most likely to be above normal (>110% of LPA)," said Mohapatra. The LPA of rainfall over the country as a whole during May based on data of 1971-2020 is about 61.4 mm. Last year, May receive 106% of the normal rainfall."Good rainfall in May would definitely boosts Kharif sowing by ensuring adequate soil moisture and early filling of reservoirs. We expect higher area coverage for pulses and oilseeds and lowering irrigation costs for farmers and lessen reliance on groundwater for initial land preparation," Dr Kalyan Goswami, director general, Agrochem Federation of India, a lobby group for the agrochemical industry.Demand outlookRural demand, which has lagged urban consumption in recent quarters, is expected to recover on the back of a favourable monsoon. It is projected to grow 6-7% in FY27, up from about 3-4% last year, based on estimates by brokerages such as ICICI Securities and Nuvama Institutional Equities in April. In good monsoon years, sectors such as two-wheelers, tractors and fast-moving consumer goods typically see a 10-12% volume uptick, according to industry reports and past trend analyses by the Society of Indian Automobile Manufacturers.Urban demand, meanwhile, remains relatively resilient, expanding at 7-8%, supported by steady salaried income growth and services sector momentum, according to estimates by the Reserve Bank of India in April. Together, private consumption, accounting for nearly 58–60% of GDP, is expected to strengthen, as per national accounts data from the Ministry of Statistics and Programme Implementation for Q3FY26.Even so, the broader monsoon outlook remains less certain.On 13 April, IMD projected that the southwest monsoon could be below normal this year at around 92% of the long-perio
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