Inflation risk more persistent than growth shock, says Tanvee Gupta Jain amid oil price surge

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 weaken
Gupta 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 open

The 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 delayed
On 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 upward
While 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 remain
On the fiscal side, Gupta Jain said policy response has leaned more on fiscal tools in the current global stagflation-like environment.

“We have seen that the policy mix has actually tilted towards fiscal rather than monetary,” she noted.

She added that while the official fiscal target remains largely intact, risks persist if energy disruptions continue.

“The central government targeted a fiscal deficit of 4.3% of GDP. My starting point of fiscal deficit is coming at 4.4% of GDP. As of now, we are seeing that the government might actually stick to the 4.4% GDP fiscal deficit target. There is definitely a risk of temporary overshoot of around 20 to 30 basis points if the energy disruptions persist for longer.”

Outlook: Inflation to outlast growth shock
Even in a scenario of geopolitical de-escalation, Gupta Jain believes inflation pressures may prove stickier than growth disruptions, with food inflation and currency weakness emerging as key watchpoints for policymakers in the coming quarters.