According to a report by Reuters, the International Monetary Fund (IMF) has highlighted significant risks that could hinder India’s GDP growth in the fiscal year 2026/27. These risks are primarily attributed to escalating conflicts in the Middle East, which have led to rising oil prices, and the potential adverse effects of a monsoon season weakened by the El Niño phenomenon.
As the third-largest economy in Asia, India relies heavily on imported oil, sourcing nearly 80% of its requirements. This dependency renders the country particularly susceptible to fluctuations in energy prices, which could negatively impact economic expansion and trigger inflationary pressures.
This month, the IMF revised its projection for India’s economic growth in 2026/27, reducing it by 10 basis points to 6.4%. Conversely, the forecast for 2027/28 saw a slight increase of 20 basis points, now estimated at 6.7%.
Ranil Salgado, the IMF’s senior resident representative for India and Bhutan, spoke to Reuters regarding these risks, indicating they are largely twofold. “The first concern is the ongoing expansion of the conflict, which affects oil prices,” he noted.
Recently, global crude oil prices, which had exceeded $90 a barrel due to worries about potential disruptions in the Strait of Hormuz, have seen a decrease over the past few days amidst reports of potential mediation between the U.S. and Iran, despite ongoing attacks and threats from Houthi forces to block Saudi Arabia.
Salgado also mentioned that the IMF’s current projections do not entirely account for the effects of a potentially weak monsoon season. “This year, influenced by El Niño, could see a poor monsoon. Although there was a delayed start with some recovery in July, we will need to monitor the situation closely,” he added.
In a related development, Salgado stated that the IMF plans to review the quality of India’s national accounts this year, following the release of revised historical data based on the updated GDP base year of 2022/23, anticipated later in 2026.
Among the actions that could be undertaken prior to the reassessment are incorporating new and revised data on wholesale price indices and industrial production into national accounts, as well as ensuring that historical GDP figures align with base year adjustments.
Last November, the IMF assigned a ‘C’ rating to India’s national accounts statistics, indicating significant methodological issues, including an outdated base year, excessive reliance on wholesale price indices for deflation, and the predominant use of single deflation methods.
Since then, India has made progress in addressing these concerns by updating the base year to 2022/23, broadening item-level deflators, implementing double deflation methods for manufacturing, and enhancing both administrative and digital data systems.
Source: Financial Chronicle Biz English | Sri Lanka Business News.
