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Informist, Friday, Jun. 5, 2026

 

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--CEA: Looking at various challenges due to West Asia war 
--CONTEXT: CEA Nageswaran at press meet on release of FY26, Q4 GDP data 
--CEA: No reason to second guess RBI on growth numbers 
--CEA: See significant supply, possible demand shock from West Asia war 
--CEA: Going ahead growth numbers to depend on how oil prices behave 
--CEA: Disruption in global crude oil production expected to be prolonged 
--CEA: Oil price remains a big question mark 
--CEA: Many hiccups in path of restoring India econ to pre-war conditions 
--CEA: Global trade remains resilient, India exports remain resilient 
--CEA: Domestic econ remains strong Apr-May with incipient signs of stress 
--CEA: There is upside risk to food, overall inflation 
--CEA: See FY27 nominal GDP growth significantly higher than 10% on high WPI 
--CEA: See upside risk to CPI inflation view in FY27 
--CEA: Domestic econ remain relatively resilient with emerging stress 
--CEA: Have to keep in mind monsoon-related risks to inflation, growth FY27 
--CEA: See wider merchandise trade deficit in FY27 
--CEA: Govt, RBI steps to help pull GDP growth back to 7% in FY28 
--CEA: Trade gap likely to widen FY27, put more pressure on current account 
--CEA: Measures on FPI invest to help finance current account deficit 
--CEA: Not right to speculate FY27 CAD, see large unknown unknowns 
--CEA: Will stick to RBI's GDP, CPI outlook for FY27 
--CEA on more steps to boost econ amid war: Have to take one step at time 
--CEA: No expectation at this stage for borrowing to be increased 
--CEA: Premature to discuss if financing FY27 borrow plan will be difficult

 

NEW DELHI – Measures taken by the government and the Reserve Bank of India Friday to incentivise and facilitate higher foreign capital inflows into the country will help to finance the current account deficit, V. Anantha Nageswaran, chief economic adviser to the government, said. "That is the idea," he said in response to whether the government's tax incentive for foreign portfolio investors will boost inflows.

 

"If you look at the 2022-23 (Apr-Mar) data, when oil prices spiked in the wake of the Russia-Ukraine conflict, and it lasted about 5-6 months, the current account deficit widened to 2% of GDP in that year. This year, we have to wait and see. There are large unknown unknowns. There is no point in trying to speculate on what the eventual current account deficit numbers will settle at, at this point," Nageswaran told a press conference following the release of FY26 and Jan-Mar GDP data.

 

Earlier in the day, the government exempted foreign institutional investors from paying capital gains tax on investment in government bonds and from paying withholding tax on interest of such investments. The move is aimed at attracting foreign investment and shoring up the country's foreign exchange reserves, which currently face pressure as India navigates one of its worst energy crises because of the war that broke out in West Asia Feb. 28. India's current account deficit expanded to $13.2 billion, or 1.3% of GDP, in the quarter ended December from $11.3 billion, or 1.1% of GDP, a year ago.

 

The central bank also announced earlier in the day that it will include all new issuances of 15-, 30-, and 40-year Indian government bonds under the Fully Accessible Route. In 2020, the central bank had introduced the Fully Accessible Route to allow non-resident investors to purchase specific Indian dated securities without restrictions.

 

"...clearly the measures announced today, both by the central bank and by the Ministry of Finance, are meant to help facilitate smoother financing of the current account deficit," Nageswaran said.

 

He said India's merchandise and overall trade deficit widened in FY26 and a similar trend, potentially with wider deficits, is likely in FY27, putting further pressure on the current account. "At the same time, as is the case with respect to global trade, there are positive surprises that global trade has remained resilient. Indian exports have remained resilient in the month of April," Nageswaran said. "Early indications for May also suggest that exports performance remains strong, which is something we would not have expected given the disruption to global trade flows because of the strait (of Hormuz)."

 

Nageswaran said there are signs of resilience in high frequency indicators two months after the conflict broke out. He said different challenges have cropped up because of the West Asia war and the blockade of the Strait of Hormuz, particularly the energy shock. "Crude oil prices are still in relation to what one could have anticipated, given the amount of supply disruptions created by the conflict. Brent crude is still trading below $100 in the financial futures contracts. But we also hear a lot of physical market prices being much higher," he said.

 

He said the price of crude oil remains a big question mark going into the second half of the calendar year with three quarters of the financial year left. Growth will depend on how oil prices behave, he said, considering that the disruption in global crude oil production is expected to be prolonged.

 

While avoiding sharing the government's growth estimates for the current financial year, Nageswaran said, "We have no reason to second-guess them (the Reserve Bank of India) at this point, because there are both possibilities on the upside and on the downside with respect to the numbers presented this morning." Earlier in the day, the RBI lowered its forecast for India's GDP growth in FY27 by 30 basis points to 6.6%. The central bank also revised downwards its growth forecast for all four quarters of FY27 by 20-50 bps on the potential risks arising from the West Asia war and supply disruption.

 

A slew of policy measures undertaken by the government will help to contain supply-side disruptions, create safety nets, and maintain macroeconomic stability, Nageswaran said. Recently concluded trade agreements and the progress on India-US and India-EU trade will support exports and capital flows, he added. "Even if the growth were to slip below 7% as the RBI forecast suggests, these macro-stability measures and supply assurances will bring us back to a 7%-plus growth track in your FY28, or as soon as external conditions permit," he said.

 

He raised concern over an upside risk to overall inflation and food price inflation this year due to the possibility of a weaker monsoon. "The central bank has acknowledged (this) in revising its number from 4.6% to 5.1% for this year with an upward risk attached to it," he said. The rising WPI inflation is also going to give further upward momentum to CPI. "This will mean that the nominal GDP growth for FY27 will be significantly higher than the number which the Budget estimates used of 10% for the current financial year," he said.

 

However, Nageswaran said it is premature to assume that the government may borrow more in the current financial year. "It is premature to say that government will have difficulty in financing its borrowing programme because there is no expectation at this stage that the borrowing programme will need to be increased," he said.  End

 

Reported by Sagar Sen and Priyasmita Dutta

Edited by Rajeev Pai

 

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