CEA warns of looming oil and rate pressures in India’s H2, sees Q2 growth at 7.3%

Chief Economic Adviser V Anantha Nageswaran said on Wednesday that the second half of the current fiscal was likely to be challenging as higher oil prices, rising interest rates and increased downside risks to global growth created a tougher external environment for India, as per a PTI report.

Nageswaran, however, defended the economy’s 7.8% GDP growth in the April-June quarter, saying the number was backed by credible data and continued momentum in high-frequency indicators such as GST collections, credit growth and exports.

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He said that the July-August data pointed to GDP growth of around 7.3%.

“The second half of the year is going to be a challenging one,” Nageswaran said in a conversation with ReNew chairman and CEO Sumant Sinha, as per the report.

Oil prices raised the pressure

The sharper risk to the second half came from higher energy costs. Nageswaran said September had been difficult because of rising oil prices, with India’s landed cost of fuel reaching $117 a barrel for the Indian basket, compared with $80-85 during June-August.

“That is a challenging environment as you have interest rate rising in the world and India as well,” he said, according to PTI.

The higher oil bill added to the uncertainty around the growth outlook even as domestic economic momentum remained intact. Nageswaran said the boost from GST rate cuts was still being felt in the economy.

CEA stood by 7.8% Q1 growth

Nageswaran said the 7.8% GDP growth recorded in the first quarter of FY27 did not come “out of thin air”, despite criticism that the number did not fully reflect economic conditions.

He pointed to GST collections, credit growth and export numbers in July and August as evidence of continuing momentum. PTI quoted him as saying that these indicators had pointed to a fairly strong first-quarter GDP reading.

He also acknowledged that changes in the GDP calculation methodology, including the use of the double-deflation method, could have contributed around 30-40 basis points to the headline growth rate because import prices had risen sharply.

India’s 7.8% Q1 growth had exceeded the Reserve Bank of India’s 7% forecast for the quarter.

Global rate risks added to the uncertainty

Nageswaran said inflation had stood at 4.3%, within the RBI’s 2-6% tolerance band, but the central bank would have to assess whether the rise in prices warranted a monetary policy response.

He said the RBI would also examine whether inflation pressures came only from food and energy or had become more widespread, including through second-round effects.

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The comments came after several global institutions raised their India growth forecasts for FY27. S&P Global Ratings and the Asian Development Bank raised their projections to 7%, Fitch Ratings lifted its forecast to 6.9%, and the Organisation for Economic Co-operation and Development raised its estimate to 7.1%, PTI reported.

Moody’s Ratings had earlier raised its forecast to 7% from 6%.

The revised forecasts remained above the RBI’s 6.7% FY27 growth projection.

Reforms remained a longer-term support

Nageswaran attributed India’s growth resilience in part to reforms implemented since 2014, saying their impact took time to emerge.

For the near term, however, he said the outlook depended on how the economy handled higher energy costs and a global environment marked by rising interest rates and greater downside risks.

India’s economy had grown 7.8% in 2025-26.