West Asia war poses no recession risk for India, but economic slowdown is on the cards: Madan Sabnavis
Why it matters: India's CPI inflation could rise by 0.5-1% if the West Asia war persists for 3-6 months.
- Madan Sabnavis believes the West Asia war will not cause a recession in India but anticipates an economic slowdown.
- Inflation could rise by 0.5-1% in India if the war continues for 3-6 months and increased costs are passed on to consumers, primarily through higher fuel and petroleum product prices.
- Households may underestimate persistent inflation, potentially feeling it closer to 7%, which could force a trade-off between consumption and savings, impacting overall economic growth.
- Household borrowing decisions for long-term expenses like home and auto loans have not been significantly impacted, with some incentive to purchase sooner to lock in current prices.
- Gold loan segments currently show no reported stress from banks or NBFCs, despite cooling gold prices, due to existing loan-to-value ratios and borrower credit histories.
While the West Asia war doesn't pose a recession risk for India, an economic slowdown is likely due to potential inflation hikes and reduced household savings, according to Bank of Baroda chief economist Madan Sabnavis. He notes that while direct impacts on borrowing decisions are minimal, prolonged conflict could push CPI inflation up by 0.5-1%, leading households to feel inflation closer to 7%.
