India's GDP grew by 7.8% in the first quarter, exceeding expectations, but maintaining such momentum in the future appears to be a difficult task. Sanjeev Sanyal, a member of the Prime Minister's Economic Advisory Council, identified three key risks for the Indian economy in the coming period: global uncertainty, crude oil prices, and the El Niño phenomenon.
In an exclusive interview with India Today, Sanjeev Sanyal emphasized that the 7.8% growth was the result of contributions from multiple sectors, including manufacturing, financial services, and construction. He noted the resilience of public and private investments in the economy.
Although the 7.8% growth was acknowledged as stronger than expected, Sanyal warned about the difficulties in sustaining such a high pace in the current global environment. He expressed satisfaction if growth remains around 7% in subsequent quarters, as the current growth has a broad foundation and is not dependent on a single sector.
Sanjeev Sanyal cited geopolitical risks, such as the conflict in Iran, obstacles in global trade, and tariff disputes, as significant threats to India. He pointed out that West Asia is a major export market for India, and remittances from Indians residing in this region also play a substantial role in the country's economy. However, the ongoing war between the US and Iran makes the entire region vulnerable.
High crude oil prices also pose a major problem for India, as the country imports a significant portion of its energy needs. According to Sanyal, India has diversified its supply sources, importing oil from various countries, including Russia, the US, and Venezuela. Acknowledging external pressures caused by global circumstances, he added that the Indian economy is currently in good shape despite these difficulties.
The risk noted by Sanyal is also El Niño, which could affect the agricultural sector. Nevertheless, he clarified that its impact cannot be compared to the severe drought observed in some parts of Europe. Since the monsoon is still ongoing, it is too early to make premature conclusions about the full impact on the economy and growth.
While the Prime Minister and the government stated that the first-quarter GDP data is a major achievement amid global instability, opposition parties, particularly the Congress, tried to criticize the government by raising issues of unemployment, inflation, and economic inequality. In response to these concerns, Sanjeev Sanyal stated that the available factual data does not indicate widespread pressure on households. According to the state labor survey, the unemployment rate is gradually declining in both rural and urban areas, although he acknowledged the concern regarding youth unemployment among educated individuals.
Regarding inflation, he advised viewing the current level of 4-5% in the context of older Indian data, where inflation often exceeded 8-12% about ten years ago. Sanyal also mentioned record sales of cars and purchases of durable consumer goods, such as air conditioners, as signs of strong consumer demand indicating stable domestic consumption.
Sanyal also defended the new GDP calculation methodology and the change in the base year. He explained that the pandemic period did not reflect normal economic activity, making the base year update difficult at that time. The update occurred in 2024 after the economy returned to a more normal state. He noted that the strong GDP figures are corroborated by other economic data, such as corporate profits and car sales.
Sanjeev Sanyal admitted that GDP growth rates may slow down in future quarters. Therefore, it is crucial to monitor risks related to global trade, oil prices, and the monsoon. However, the main strength of the Indian economy in the current situation is that growth is coming from multiple sectors, and this broad base can support the economy during external shocks.