India's economic growth, projected at 6.5 per cent by the International Monetary Fund (IMF), could slow closer to 6 per cent as elevated oil prices continue to weigh on the economy, former IMF Deputy Managing Director and Chief Economist Gita Gopinath told ANI.
According to Gopinath, the impact of higher oil prices is likely to persist into next year.
"We are not going to see the price of oil come down all the way very quickly. It's going to take probably till the middle of next year for oil to come back to say $70 or $75 a barrel. So there is going to be an effect lasting into next year," she said.
She said higher energy costs would affect consumption and investment, leading to slower economic growth than the IMF's current projection.
Gopinath also cautioned that the outlook could worsen if tensions in West Asia continue longer and disrupt oil supplies. She said markets are underestimating the possibility of a prolonged conflict.
"If this continues for another month, we're looking at oil prices that could go up to like $120 and $140 a barrel and could stay there for much longer. In that scenario, we could have global growth, which is now projected at 3.1 per cent, going down to say 2.5 per cent and even closer to 2 per cent," Gopinath said.
She noted that such a scenario would put greater pressure on India's growth prospects.
On policy measures, Gopinath stressed the need for supply-side reforms to reduce dependence on imported energy through greater use of renewable and nuclear power. In addition, she said, improving the ease of doing business could help attract investment.
"Having a positive story on AI in terms of the fact that AI can be net positive for India. These are the kinds of actions that would help increase interest in India as a destination for investment capital and that would also take the pressure off the rupee," she said.
Gopinath further said that shifting global trade patterns could create opportunities for India, particularly as the country expands trade ties and signs more agreements, including with the European Union. This, she said, could help India strengthen its role in global supply chains.
