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OPEC stated in its latest monthly Oil Market Report that India’s near-term outlook remains comparatively favourable. Output and sentiment indicators through May point to continued healthy growth, with services and domestic demand providing the main support, while manufacturing remains resilient. However, risks around the baseline have increased somewhat. A prolonged elevated level of imported energy expenditures could widen fiscal and external pressures and complicate the RBI’s inflation-growth trade-off. Sustaining India’s growth momentum will therefore require a careful balance between cushioning the economy from external shocks, preserving fiscal credibility, and anchoring inflation expectations. The consequences of rising fuel and fertiliser subsidies, possible compensation to oil-marketing companies, lower fuel-tax revenues if excise duties are reduced, and higher interest costs could all complicate deficit reduction in the fiscal year 2026/27. In this context, continued energy subsidies may remain growth-supportive in the short term but could increasingly constrain fiscal space if no durable resolution to the situation in the Middle East is found. The Indian economy remains well supported by ongoing steady domestic demand, as reflected in the latest domestic data points, supported in part by government-led support measures, in combination with continued prudent monetary policies. The latest inflationary trend may have a limited dampening effect on consumption in 2Q26 and to some extent in 3Q26 as well. However, the strong growth in 1Q26 and a continued robust growth dynamic in 2Q26 will support annual growth. Against this backdrop, the 2026 economic growth forecast for India remains at 6.6%, unchanged from the previous month’s assessment. With steady momentum projected for the end of 2026, the Indian economy is expected to maintain its robust expansion in 2027. This forecast is supported by prospects for continued structural reforms, a continued expansion of the manufacturing sector, and fiscal and monetary policy support. Powered by Capital Market - Live News
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