India growth expected at 6.5% as country 'most directly impacted' by West Asia crisis: Gita Gopinath

Former IMF Deputy Managing Director Gita Gopinath told ET NOW that India’s growth is expected to remain around 6.5% this year, even as global risks persist. She noted that while inflation is being contained in part because companies are absorbing higher costs, this situation may not be sustainable in the long run.

"India is among the nations most directly impacted by West Asia developments.. The crisis is expected to dampen India's growth at 6.5% this year," she said.


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Gopinath highlighted that West Asia remains a critical supply chain hub for India, though recent geopolitical tensions and the ongoing blockade continue to pose risks. She added that supply chains have become more diversified since the 2022 disruptions, and many economies are also gradually shifting towards renewable energy.

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On the comparison with past inflationary pressures, Gopinath said, "Also, compared to 2022 what was different was that it was not just that there was a supply shock and there was lesser commodities available, but that was a time if you recall that we were coming out of the pandemic lockdown, so demand was surging and that surging demand meant lower supply and so that is why you had prices go up much more than what we are seeing right now. Right now, we do not have that big demand surge."

However, she cautioned that the world is not out of risk yet, as the current crisis is not accompanied by a strong global demand surge.

While immediate demand pressures are muted compared to the post-pandemic period, she warned that food prices could rise with a lag if disruptions persist, especially if prolonged conflict leads to shortages in fertilisers, impacting agriculture and crop output.

She further observed that in the absence of a global demand spike, central banks may choose to hold off on aggressive rate cuts. She also noted that the economic cost of any oil shock would likely be felt across multiple sectors of the economy.