West Asia Conflict Clouds Growth Outlook; CAD May Widen to 2% in FY27: CEA Nageswaran

India's Macroeconomic Outlook Remains Optimistic Despite Global Uncertainties

India's Chief Economic Adviser, V Anantha Nageswaran, flagged potential risks to the country's macroeconomic outlook on Saturday, specifically citing the ongoing West Asian conflict. However, he maintained that the economy is still on track to achieve another year of growth exceeding 7%.

The West Asian conflict has coincided with India's projections of 7-plus percent growth for the upcoming year. To mitigate the impact of the conflict, authorities are focusing on managing the supply aspects of crude oil. India's dependence on imported oil has raised concerns, but Nageswaran argued that alternatives come with their own price challenges.

| Comparison of India's Current Account Deficit (CAD) | | --- | --- | | FY26 | FY27 (projected) | | Less than 1% | Around 2% |

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Higher import prices and softer remittances could pressure the external balance, leading to a widening of the current account deficit. Nageswaran projected that the deficit could reach around 2% in FY27, up from less than 1% in FY26.

Despite global uncertainties, Nageswaran expressed optimism about capital inflows into India. He projected that the country may end the current fiscal year (FY26) with gross foreign direct investment (FDI) of $90-95 billion. Nageswaran attributed this to India's strengthening position as a center of production for both domestic and international markets, which is unlikely to lead to a significant drop in FDI inflows in the next fiscal year.

On inflation, Nageswaran pointed out that structural shifts in the consumer basket have reduced the share of food in the overall Consumer Price Index (CPI) basket from 43% to 36%. However, he cautioned that near-term pressures could trigger a temporary spike in inflation, particularly if there is a below-normal monsoon or cost pass-throughs.

| Comparison of India's Food Share in CPI Basket | | --- | --- | | FY26 (projected) | FY27 (projected) | | 36% | 36% |

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Nageswaran highlighted progress in easing business regulations, with states showing strong momentum in deregulation. According to him, states are enthusiastic about taking up deregulation in 23 areas, with about 86% of the deregulation target completed.

In his observations on the evolving global order, Nageswaran noted that traditional blocs are weakening, with the G7 becoming less coherent as a block. He suggested that middle powers may need to form new alignments focused on energy security, critical minerals, market size, and financial strength.

Lastly, Nageswaran flagged a gap between corporate profitability and investment. Post-Covid, Indian corporate profits grew at 30.8% per annum, but overall private sector capital formation has been disappointing.