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Informist, Monday, Jun. 29, 2026

 

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--Motilal Oswal Piplani: See FY27 GDP growing 6.5% vs 6.2-6.3% seen earlier
--Motilal Oswal Piplani: See FY27 growth over 6.5% if El Nino blow softens
--CONTEXT: Motilal Oswal Fincl Svcs Chief Economist Piplani in an interview
--Motilal Oswal Piplani: See crude oil averaging $85/bbl in medium term
--Motilal Oswal Piplani: See FY27 CPI at 5.3%, 30 bps lower than earlier view
--Motilal Oswal Piplani: Some bit of pass-through of high WPI to CPI likely
--Motilal Oswal Piplani: Do not see any more retail fuel price hikes
--Motilal Oswal Piplani: Fisc slippage in FY27 to be one-off, not structural
--Motilal Oswal Piplani: See FY27 nominal GDP growth 13-13.5% vs Budgeted 10%
--Motilal Oswal Piplani: See FY27 as temporary shock to govt fisc glide path
--Motilal Oswal Piplani: See FY27 fisc deficit slipping 30 bps to 4.6% of GDP
--Motilal Oswal Piplani: Govt has enough levers to fund fisc slippage in FY27
--Motilal Oswal Piplani: See govt overshooting FY27 small savings mop-up aim
--Motilal Oswal Piplani: Don't see higher mkt borrow FY27 despite fisc stress
--Motilal Oswal Piplani: Don't see repo rate hike in FY27 as oil prices lower
--Motilal Oswal Piplani: Fear of 6% inflation behind us
--Motilal Oswal Piplani: See rupee averaging 95/dlr in medium term
--Motilal Oswal Piplani: Don't see rupee falling below 96/dlr at all now
--Motilal Oswal Piplani: See FX inflows of $120 bln from RBI, govt steps
--Motilal Oswal Piplani: See FY27 BoP surplus at $45 bln
--Motilal Oswal Piplani:See FY27 CAD 1.5-1.6% of GDP vs 2.1-2.2% view earlier
--Motilal Oswal Piplani: See $50 bln inflows from RBI's FCNR(B) swap window
--Motilal Oswal Piplani: See $25 bln-$30 bln inflow from RBI's FX swap window
--Piplani: See $20 bln-$25 bln inflow if gilts added in Bloomberg bond index

 

By Priyasmita Dutta, Pratiksha, and Shweta

 

NEW DELHI – India may attract close to $120 billion in foreign inflows on account of the host of measures announced earlier in the month by the Reserve Bank of India and the government, Radhika Piplani, chief economist at Motilal Oswal Financial Services Ltd., said. The quantum could rise to as much as $145 billion if government bonds are included in Bloomberg Index Services Ltd.'s flagship Global Aggregate Index, she added.

 

"Most economists are at $80 billion to $90 billion, and I am saying that it will be close to $120 billion," Piplani told Informist in an interview. "My balance of payments surplus comes to $45 billion as against pre-policy (-)$80 billion. So, it's a very, very big swing which we are talking about here."

 

Earlier in June, the RBI and the government had announced a slew of foreign capital measures at a time when the rupee had come under immense pressure due to a surge in crude oil prices and strong foreign capital outflows following the onset of war in West Asia at the end of February. On Jun. 5, RBI Governor Sanjay Malhotra announced a facility of concessional foreign exchange swap till Sept. 30 to incentivise external commercial borrowings by public-sector undertakings. He also introduced a facility to bear the full hedging cost for banks raising fresh three- to five-year foreign currency non-resident deposits till Sept. 30.

 

The government, meanwhile, exempted foreign institutional investors from paying capital gains tax on investment in government bonds. It also exempted FIIs from paying any withholding tax on interest on such investments.

 

Piplani expects the central bank's swap facility for FCNR(B) deposits to draw the majority of foreign inflows. She expects almost $50 billion in inflows from the FCNR(B) window and around $25–30 billion from the external commercial borrowings facility.

 

On the back of these inflows and due to crude oil prices falling to pre-war levels after an interim peace deal between the US and Iran, she expects the rupee to average close to 95.00 a dollar in the medium term, against the earlier expectation of 96.00. She does not expect the Indian currency to fall past 96.00 at all now. The rupee has fallen over 5% against the dollar so far in 2026. It hit a record low of 96.96 a dollar in May.

 

Following the sharp correction in crude oil prices, Piplani sees India's headline inflation for the financial year 2026-27 (Apr-Mar) at 5.3%, against the earlier estimate of 5.6%. She also projected India's GDP growth for FY27 at 6.5%, 30 basis points higher than brokerage Motilal Oswal's earlier estimate. "We are still at 6.5?cause we want to wait and see the impact of El Nino playing through," she said. "This is possibly the worst El Nino that we will end up seeing in the last decade or so. But if it (El Nino) doesn't come out to be as strenuous as everyone is anticipating it to be, our growth forecast will be up even further." 

 

Motilal Oswal had earlier expected the RBI's Monetary Policy Committee to opt for a cumulative rate hike of 50 bps beginning in the October meeting. However, with inflation expected to be under control, Piplani now does not expect any rate hike this year. "With oil prices retracing and consumption likely to come under stress because of El Nino, the risks are more balanced in terms of inflation, but more skewed against growth, which is why now I don't expect any rate hike, or I am reducing the probability of any rate hike happening this year," the economist said. 

 

Below are the edited excerpts of the interview:

 

Q. What is your projection for India's GDP growth in FY27 now, with a peace deal between Iran and the US in place?

A. Oil prices have turned out quite favourably for us. The only risk for India going forward is of El Nino, and we are talking about the super El Nino, which is impacting us. We are already seeing it with the rainfall deficit being a little higher than 40% on a year-on-year basis. That is something which is obviously hampering or might end up hampering consumption. So El Nino is still a risk for India, but oil prices are turning favourable and are quite positive.

 

For FY27, we have revised our GDP forecast from 6.2–6.3% to 6.5%. Note that this is still lower than the RBI's projection of 6.6%. We are still at 6.5?cause we want to wait and see the impact of El Nino playing through. This is possibly the worst El Nino that we will end up seeing in the last decade or so. But if it (El Nino) doesn't come out to be as strenuous as everyone is anticipating it to be, our growth forecast will be up even further.

 

Q. You mentioned that you see crude oil prices as favourable. What is your medium-term outlook for crude oil with the de-escalation of the war? Do you think the fear of CPI inflation touching the upper band of 6% target is broadly behind us? What would be your estimate for CPI in FY27?

A. When the war started, we were sure this would not end very soon because any geopolitical upturn which has happened over the last few years had never ended in a month or two and lasted at least 90 days. We had done all our projections based on an oil price assumption of $95 per barrel, the same as the RBI. 

 

With oil prices below $80 per barrel, we have revised our assumption from $95 to $85, which now appears a more likely base case scenario to work with. If we look at the oil price trend curve, the backwardation of oil demand and supply indicates that the oil prices from these levels are also currently expected to inch down. This means if they (oil prices) come down sub-$70 per barrel on a sustainable basis, it is quite positive for the overall macroeconomic environment. With the lower crude oil price assumption, we have trimmed our forecasts for inflation. With a $95 per-barrel oil price assumption, my forecasts were 5.6%, which is where we were looking at inflation touching 6% in the December quarter. Now, that is obviously behind us. We are looking at inflation close to 5.3% for FY27. 

 

Our inflation projection accounts for the El Nino-led supply-side disruption. We are also accounting for the first and second order disruption, which is happening at a lot of factories or industry level, and that is percolating down on to overall inflation to an extent.

 

The base is also quite unfavourable for us because in FY26, headline inflation was close to 2.1%, which is very, very low. That gives a further upside to the overall inflation. Broadly, I am looking at 5.3% for FY27. But it is still wait-and-see for the El Nino risk. We have started to see all the mandi prices and food prices inching higher on a day-to-day basis. That remains a big enough shock which is still ensuing in the system.

 

The government is doing a lot of things in terms of managing the negative feedback from the food price shock. Nevertheless, I think that some bit of upside from food shock is on the table. Globally as well, price indices of cereals, wheat, pulses, boiled seeds, and corn have risen in double digits on a year-on-year basis. We do find some bit of correlation between global prices and domestic food inflation as well. There is still a bit of uncertainty, but definitely, I do not expect to see 6% (inflation).

 

Q. For the past two months, we have been seeing that the headline inflation is below the RBI's medium-term target of 4% whereas the wholesale price index is 9.68%. Usually, there is a two- to three-month gap in the transmission of WPI to CPI. But now that we know the war is de-escalating, do we still see WPI inflation transmitting fully to CPI? Or will the gap be maintained?

A. There is always a partial transfer happening from the WPI to the CPI, and it happens with 2-3 months' lag. We do interact with a lot of companies who say that a lot of pass-through has happened to the end consumers in terms of the price hike of fast-moving consumer goods like oil, shampoo and soaps, and so on. Still, some are pending because the companies are bearing it on their balance sheet.

 

It's good news that oil prices have decreased because now, the likelihood of them passing it even more decreases. It's a one-time shock that companies can take on their balance sheet. But because the demand which they foresee at this point has still not weakened significantly, they are likely to pass on a bit more. 

 

Even, for example, the retail fuel price hike, which the government has obviously ultimately passed on. Despite oil prices coming down, we do not anticipate the government will take back the price hike. Because they will continue to support the oil marketing companies for all the losses that they have incurred. So, at least for 6–7 months or maybe for this whole year, they will continue to support the balance sheets of the OMCs and not take back that kind of price increase which has happened for petrol and diesel.

 

In all, some bit of pass-through from WPI to CPI is likely. It will not be a one-on-one, so we might not end up seeing a very large increase in terms of our core inflation. Because at the end, our core CPI strips off all the superfluous fuel and food prices. It will not be large, but a bit of an increase is very much going to be visible in the coming times.

 

Q. We should not expect further fuel price hikes at the retail level, right?

A. No, that is definitely off the table. With oil prices now coming down way beyond anyone's expectations, it is definitely off the table. The government is no longer going to shock the economy because it has a very significant impact on consumption, which is already a bit constrained.

 

Q. You expect a fiscal slippage of 30 bps in FY27--a temporary interruption in the consolidation path rather than a reversal of it. But from a broader point of view, do you think India is on a sustainable path of debt-to-GDP reduction?
A. This year will be a one-off in terms of debt-to-GDP reduction. The good part is that nominal GDP will be higher than what the government had estimated in the Budget. The government did the entire Budget math using the 10% nominal GDP assumption. Currently, with a 6.5% growth outlook and a weighted average of WPI and CPI of 7–8%, I am getting a nominal GDP close to 13–13.5%. So, directly, you are moving up from 10% to 13–13.5%.

 

Even though the debt this year might be slightly higher because of a lot of fiscal pressures, the debt-to-GDP ratio might not worsen as much as one is anticipating. I feel that the path of fiscal consolidation is something where we are seeing a temporary shock. It's not like the government is now taking it in its scope to expand fiscal expenditures beyond its means. They are more or less likely to go back on the path of fiscal consolidation once this shock ends.

 

The fiscal deficit will slip from 4.3% to 4.6% of GDP, but the market borrowings will not increase. The government has sufficient levers to fund this kind of fiscal deficit, like T-bills (treasury bills), ways and means advances, and small savings collections. The government has under-budgeted the small savings collection target. The likelihood of that number coming higher than what the government has budgeted is way higher.

 

This means there are very, very strong reasons for the government to be able to manage close to INR 1.3 trillion slippage that was coming as per my calculation. The government will also collect some money from the offers for sale it is announcing. All the revenue collection for FY27 has also been budgeted with a 10% nominal GDP growth assumption, and now that the nominal GDP is likely to be higher, revenue collection can either remain the same or it can marginally inch higher if the sales volumes inch a little higher.

 

Overall, the government is in a very good position to handle the kind of stress that it is under at this point.

 

Q. In terms of taxation, India collects more revenue from personal income tax than corporate tax. Do you think the government must re-examine the corporate rate structure, considering the steep cuts it rolled out in 2019? 

A. My understanding of this government is very clear. They are looking at "ease of doing business". If you want to make India investable, if you want to increase the visibility of India on the global platform, you will have to deal with these kinds of corporate tax incentives.

 

On the contrary, because you want to ease doing business in India and want to increase India in terms of global rankings or investable market, a lot needs to be done in terms of the securities transaction tax, long-term capital gains tax, and short-term capital gains tax. These are the structures the markets are still not very comfortable with. It's the need of the markets and of the global economy, from India's perspective, to reduce the amount of taxation.

 

They (the government) have rightly done so for debt, but obviously, you would not expect all of this to percolate down the equity route. But whatever is best possible in terms of the best favourable tax rates for global economies... that is something which we need to be cognisant of.

 

Q. Are you still expecting a 50-bp repo rate hike in FY27?

A. Now with oil prices retracing and consumption likely to come under stress because of El Nino, the risks are more balanced in terms of inflation, but more skewed against growth, which is why now I don't expect any rate hike, or I am reducing the probability of any rate hike happening this year. Earlier, I was anticipating October and December as 50 bps of a cumulative rate hike, but now I don't expect that.

 

Q. How has your outlook for the rupee changed after the announcement of measures from the RBI and the government, and the way the situation has evolved on the war front?

A. Earlier, I was looking at the average dollar-rupee projection close to 96, which means I was expecting the rupee to go even higher towards 97–98, which is how it can average close to 96. Now, I'm looking at 95, and I don't expect the rupee to cross 96 at all. I do expect certain sporadic movement closer to 93 as well.

 

But structurally, because, post-September, no one knows how the flow movement will end up being, and because we are a twin-deficit economy, our fiscal deficit and current account deficit are worse than what they were in FY26, some bit of depreciation is likely to happen by the end of the year.

 

Q. What is your estimate of capital inflows from the RBI and government's steps earlier this month?

A. So, now with the $85 a barrel assumption in terms of oil prices and given all the measures the RBI has announced, I am looking at capital inflows close to $120 billion. Most economists are saying $80 billion to $90 billion, and I am saying it will be close to $120 billion. My balance-of-payments surplus comes to $45 billion, as against pre-policy (-)$80 billion. So, it's a very, very big swing which we are talking about here.

 

Q. What is your outlook on the current account deficit for FY27?

A. Current account deficit, I was expecting close to 2.1–2.2% of GDP with a $95 a barrel oil price assumption. Now, I am expecting close to 1.5-1.6% (of GDP).

 

Q. Which particular measure do you think will be the biggest attractor of inflows amongst the list of measures the RBI has announced?

A. I think, definitely, hands down, the policies related to non-resident Indians, because we have been talking to a lot of bankers, and we are understanding the amount of interest that NRIs have in putting money here, because it is not just the interest rate, but also the rupee, which has turned quite favourably for them. On a net basis, they are actually ending up gaining a lot by putting their money in India.

 

I am expecting $50 billion of inflow due to NRI deposits, and in terms of external commercial borrowings, it can range anywhere between $25 billion–$30 billion, at maximum $40 billion. Some bit of positive externalities will come through foreign direct investment and active inflows if India gets included in the Bloomberg bond index or the JP Morgan bond index. If any of that development happens, the likelihood of which increases this year with a lot of tax changes, that brings an additional $20 billion–$25 billion of capital inflows.

 

Q. Considering how volatile the global situation can be, if crude oil prices go back to $100 a barrel, do you think India has enough reserves to deal with that situation again, considering the RBI's large forward dollar book?

A. Yes. Our main problem was never oil. It was more on gas--that we did not have gas reserves. We still had a decent amount of oil reserves.

 

It looks unlikely that we will go back to that situation (of crude oil at $100 per barrel), but in the worst case, even if this ceasefire doesn't hold by the end of 60 days or whatever, I feel that we are much better prepared. The economy has internalised the kind of shock that was ensuing, and now things are obviously status quo. I think the worst is behind us. Whatever happens now, incrementally, oil prices are unlikely to go above $100 or $120 a barrel.  End

 

US$1 = INR 94.32

 

Edited by Rajeev Pai

 

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