India better placed to tackle West Asia war impact: Agencies

NEW DELHI: The Indian economy is seen to be relatively better placed to face the impact of the West Asia crisis, two global agencies said on Tuesday.

The International Monetary Fund’s (IMF) latest World Economic Outlook revised upwards India’s growth projection for the current fiscal year to 6.5%, against 6.2% estimated earlier, citing the strong momentum from last year as well as the fall in US tariffs on exports, arguing that this outweighed the adverse impact of the Iran conflict. In line with other projections, inflation in India is expected to accelerate to 4.7% this year as the impact of low food inflation wears off.




Last week, the World Bank raised India’s growth outlook to 6.6%, compared with 6.3% estimated in Oct, citing robust domestic demand and strong export performance.

On Tuesday, IMF said that uncertainty for the global economy remains high due to the war in West Asia as well as the US tariff situation, which is still playing out. It painted multiple scenarios, with global growth forecast ranging between 3.1% (reference forecast) and 1.3% in a severe scenario, with 2.5% projected in an adverse scenario.

While S&P cautioned that India is not immune to the effects of the war, which may be felt on households and businesses. It also said India is equipped to handle some strain.

“Robust corporate balance sheets provide a cushion against higher energy prices. Banks have strong capital and profitability. India’s robust external position gives it buffers to absorb some shocks from a higher import bill. We, therefore, don’t expect any immediate impact on ratings on the sovereign, corporates and banks. Even so, govt’s efforts at fiscal consolidation could also face temporary setbacks,” the ratings agency said.

S&P projected a further weakening of rupee, in case oil prices remained high, which will also adversely impact the current account balance.

While estimating GDP growth of 7.1%, with oil price at $85 a barrel, it projected the expansion to moderate to 6.3% in case crude hovered around $130 levels. In such a situation, it also warned of an adverse impact on corporate profitability and asset quality of banks.

Chemicals, refining, and airlines are among the most exposed sectors, S&P said, adding that govt finances may take a hit due to excise cuts on oil and higher fertiliser subsidy.
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