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Okay, hello and welcome to the Core Report Weekend Edition. Now here's the news: crude prices have fallen quite dramatically, particularly on Friday, by more than 3%. We are now looking at crude, that's Brent crude prices, under $73 a barrel, which was pretty unimaginable maybe even a week or two ago.

So we've gone from almost the worst case to perhaps the best case situation when it comes to the West Asia crisis and the impact it is having on economies, and maybe more so in South Asia and Asia. So the question, therefore, is, now what does this mean for India from a sort of cascading positive impact point of view? So I've got three guests to sort of walk us through all of that, what it means for India right now and what it could mean in the near term, considering that we've usually had some pretty worst-case scenarios in prices of crude oil, mostly in the $90 to $100 a barrel range, when it came to estimating what the impact would be.

So obviously all of that has changed. So my three guests for today, Rajni Sinha, Chief Economist at CareAge Ratings, Somashekhar Vemuri, Senior Director at Crystal Ratings, and Manas Majumdar, Partner Oil and Gas Leader at PwC. Thank you all for joining me.

So Rajni, let me start with you. So I think we've clearly moved from a test situation that we were looking at for several quarters to now something that we can look at in the rear view mirror, though we, of course, don't know for sure. We're just hoping that things will remain as they are.

But now, as of now, given where we are, how are you seeing the impact on the economy and where oil prices have finally landed?

Rajani Sinha

So firstly, like you mentioned, Govind, the sharp fall in crude oil prices that we have seen in the last few days is a big positive for the economy from an overall macro perspective, growth, inflation, government finances, current account balance. This early resolution to the crisis will be a big supporting factor for the economy. But having said that, I would like to highlight that we can't be certain that crude oil prices will remain at these low levels.

There is a high chance that the whole uncertainty around the West Asia crisis is likely to remain going forward as well. We have already seen there was an attack on a ship yesterday, and prices went up a little again. So these kinds of uncertainties are going to remain.

A lot of damage has already been done to the oil supply. It could take time for that to come back to the market. Also, as we have been seeing in the data, a lot of economies have done a sharp drawdown of their oil inventories. So if they start replenishing that now, again, that is something that's going to put pressure on prices. So we are still working around the assumption of crude oil prices hovering broadly around $85 to $90 per barrel for the year.

Having said that, yes, as far as our growth projections are concerned, we were of the view that GDP growth projection would be around 6.7% for FY27. So we will stick to that, because anyway, when we had worked out 6.7%, we were working around an early resolution of the crisis, which hopefully will happen now. So we'll stick to that assumption.

In fact, on the growth front, the concerning aspect now will be the focus shifting to the poor monsoon and what the impact of that on the economy could be. But right now, we'll stick to our 6.7% projection. In fact, all our projections will remain the same.

Inflation, we are expecting around 5% or so for the year on average. Here, I would say there are concerns it could turn out higher. We are concerned around food inflation specifically, with concerns around El Nino and a weak monsoon this year.

Current account balance, we are expecting a deficit of around 2.1% of GDP. That could, in fact, turn out better, because if you look at the momentum of services exports and the kind of remittances we have been receiving from the last few data points, and even our merchandise goods exports have been healthier than what was being feared. So overall, the current account deficit for the full year could turn out lower.

So broadly, this is our expectation on the economy.

Right. So some macro numbers are looking good, maybe better than what we thought, and some we are still not sure about. Manas, let me come to you.

So one of the statements that I picked up from an analyst who spoke to Reuters was that their expectation, or their view, is that at this point, the situation is one of imminent oversupply of oil. So obviously, not that we had a supply shortage, but clearly we had a price problem, and we are now looking at oversupply. I think pick up on what Rajni said about whether there will be a sudden rush to replenish reserves. How are you seeing the overall oil situation from a supply point of view, oil and gas for that matter?

Manas Majumdar

Well, I think that is an area of concern, right? Because what has happened is geopolitically things have somewhat, I would say, stabilised. The deal is still not signed; an MOU has been signed, and we know what an MOU stands for.

Right. So the details are still to be worked out. The supply side situation had improved in the sense that the number of ships had started moving.

But having said that, the actual production, nothing has changed per se. Iraq is highlighting the fact that it will start producing more than the OPEC quotas allow, because OPEC still plays that role of cartelising the amount of volume that goes out. But until some of that happens, the good part I would highlight is that during the time this crisis was happening, the UAE said it would opt out of OPEC.

So that gives them an avenue for producing more there. The UAE, anyway, from the Fujairah terminal, was one of the areas where they were trying to push oil out, because that is outside, just on the cusp of the Strait of Hormuz, and they were able to do that. Similarly, Saudi Arabia was trying to do the same from the Red Sea side of things.

So actually, on the production side, nothing has changed. In fact, we have been weakened, as has been talked about, so until those come online, nothing really changes. The supply chain part of it has opened up a bit, which is good.

So people are normalising. But yes, as and when the reserves start getting replenished, because they are almost down to one month's worth of inventory, that will again put pressure on prices going forward. As of now, I think it's still time to take a sigh of relief.

So it's not as bad. In fact, I remember we were discussing last time, Govind, that this might continue into Q2 and then things would worsen. So we are still in Q1, so to speak, right?

So there is light at the end of the tunnel.

Right. And let me put that question from a more India-specific perspective. So as I understand it, the current crude basket, that's the Indian basket of crude, is at about $70, just under $71.

And this had hit about $113 in March and $114 in April, and then it started softening a little bit. So what does that translate into from your vantage point?

And I'm going to come to Rajni as well. So, sorry, go ahead, Rajni.

Rajani Sinha

So, see, for us, the main aspect that we would look at is what happens to the current account balance from a macro perspective. I would look at that, and eventually at what to expect on prices, retail prices, and eventually on inflation. So, like I said, on current account balance, if I look at it, I'm not sure the prices will remain at these levels.

So we are still working under the assumption that prices could again go up, higher, to around, I'm not sure, maybe anywhere between $80 to $90. So, in that sense, in our projections, we have not yet worked in a big relief on the crude oil price front in our current account projection. But having said that, like I said, we are seeing positive signals from some other aspects.

The fact that the last quarter's BOP data that came out showed that services exports were very good. Remittances were very healthy. There was some concern that, with the West Asia crisis, we could see a hit on our remittances, at least in the fourth quarter; that was not visible.

We could see it in the first quarter of this fiscal year. And, like I mentioned, even the non-oil merchandise goods exports for April-May, the data that we have, recorded good growth of around 10% or so. So I would say we are getting more comfort on the current account front from these other aspects.

Crude oil prices falling is a big relief, yes. But I feel that from these levels, prices could go higher.

Right. And you mentioned remittances and services, and you mentioned it again. So are you getting a sense that it's a bump, a sudden bump, or is it likely to be more secular, both the flows of remittances as well as services exports?

Rajani Sinha

See, no, the trend in services exports growth had been good. It's not a recent phenomenon. It has been good for the last few years.

And what we have been seeing is that even when there were concerns post-COVID around the Russia-Ukraine war and the US tariff concerns, it was our services exports that were supporting the current account balance. But we were expecting some moderation to happen over time, which we have not seen. We are still seeing it recording good growth.

So that is what I'm talking about. That is a positive aspect that we have seen. Again, on remittances, remittances have been healthy, but there were concerns around the West Asia crisis.

And given that more than 30% of our remittances come from that region, at least in the fourth quarter, we did not see any impact. We saw good growth in remittances.

Okay. Manas, so the prices at the pump level, whether for petrol and diesel or, for that matter, gas, commercial and residential, have obviously not changed as yet. So what's your sense, assuming prices remain low, and of course the oil companies carrying their past losses as they are, what's your sense of the possibility of any price reduction, which will obviously make all the difference in some of those macro numbers that we're talking about?

Manas Majumdar

No, it's interesting, Govind, a few months back we were saying, when will prices be increased? And we said post the elections in March, and now we're discussing when prices will reduce. They will not move as quickly.

It didn't happen that soon either. It didn't happen until the swearing-ins, etc., happened in your district this week or next week.

See, it's essentially going to be that, you know, the whole process you highlighted, which is that first the government will try to take back the excise duty reduction that they had done. They have to build up the government coffers so that the rest of the infrastructure and the revenue expenditure can actually happen.

Right. So that was one thing that was taken into account. So that will be addressed first, the macroeconomic aspect, which means that for that excise duty to be added back, the prices cannot be reduced.

What that will mean is the OMCs will therefore have to get lesser margins than what they were getting earlier, because that idea was to reduce their losses at that point in time. The third will then be the price cut. So I think it will have to get staggered through both of those lenses.

First, the excise duty reduction that happened, followed by a period where the OMCs will be allowed to recover some of the under-recoveries, or the losses, that they had maintained over the last three or four months at least. And of course, many of them are going through CAPEX cycles. So some of that has to be built in.

And then eventually it will get passed on. Across many states, I think about four price rises happened; we are looking at anywhere between a 10 to 11 rupee increase in pump prices. Again, as I was highlighting, potentially a quarter or two down the line you could see a three or four rupee reduction to start with. So it's not going to happen soon.

In any case, all three of these things that I mentioned, first, there'll be a bit of a wait-and-watch period. How stable is this peace deal? And is there no reversion or inversion of the whole demand-supply dynamic?

And I'm going to come to Somashekar, who has joined us. But are you seeing any difference in the way oil and gas prices, or supplies, will move, or supply impacting prices? Manas, the question was for you.

Somasekhar Vemuri

So this question is for me?

No, no, that was for Manas. Manas, the question was for you. Are you seeing a difference between the way oil and gas prices could behave, or will behave, in terms of supply, and then supply impacting price?

Manas Majumdar

No, no. So, as for pump prices, we discussed in terms of supply prices, as I said, $70, honestly, I think it came down much more sharply than I had expected. Because again, as I said, from a production standpoint, nothing has changed.

The supply chain has eased off a bit. But to that extent, as the oil reserves start getting filled up, they may put pressure on prices again. So we would assume somewhere in the $70 to $80 range.

Our prediction at the beginning of the year was that crude would go below $60. In fact, it was hovering around $60 and would probably have gone below that. But I think it will be in that $70 to $80 range.

Gas, on the other hand, I had suspected would go down much more sharply, because, given that gas supplies are a little more diversified and available to that extent. But they've gone down, though not to the extent I would have expected. Crude, to that extent, has gone down further.

However, going forward, I do expect it to be range-bound in that $70 to $80 range, so to speak.

Got it. Somesh, thank you for joining us, and good to have you here.

So you've done a report looking at the impact of what's been happening in West Asia and the price shocks on the economy. And I think your stress scenario was looking at three quarters for both oil and gas. And now we're looking at four months in the rearview mirror, hopefully.

So walk us through what your key findings are.

Somasekhar Vemuri

So thank you for having me on your show, Govind. So, if I step back, when we did our stress test in May, how long the conflict would last and how long it would take to stabilise was clearly not very clear at that juncture. So we had assumed the war and the stabilisation period would last for about three quarters as part of the stress test.

And in that situation, we had assumed crude oil prices would average about $110 per barrel for the entire fiscal year. Compared to that, now when I look at the situation, we've seen that there is an MOU. While it's a temporary, meaningful pause in disruptions, it's still fragile.

We understand that. Having said that, what we've seen is that energy prices have come down quite sharply. And we've now painted a scenario where the stabilisation is much faster, especially for crude and gas prices, maybe in four months.

So, in our earlier stress scenario, we anticipated there could be about a 200 basis point impact on the operating profitability margin for corporate India. Whereas in the current environment, our analysis indicates that the impact could be limited to about 100 basis points, roughly halving what we assumed in our previous stress test. Also, the impact was much more broad-based in our stress test.

Almost 22 out of 34 sectors that we looked at were expected to see some kind of margin pressure in May, when we carried out the stress test. Compared to that, currently, it's a much lower number. So overall, it's a far more benign environment.

Energy prices coming down, and the supply, as well as the prices, of both crude oil and gas normalising, is, at an overall level, beneficial for corporate India, given that we are dependent a lot on both of these as a critical input.

Right. So are you saying that by the end of the financial year, assuming things stay where they are or improve, we could have actually absorbed most of the shocks that we would have faced, at least in this financial year?

Somasekhar Vemuri

That's right. I mean, we are talking about it from a credit quality perspective. One of the things which has clearly helped corporate India is that balance sheets have deleveraged substantially.

And if we look at it from two metrics, the debt-to-equity ratio at a median level for almost 4,000 companies in our portfolio has reduced from about 1.1 times over a decade back to less than half as of March 2026. And if you look at another metric, the interest coverage ratio, that has doubled from about two and a half times a decade back to more than five times now. So clearly, the balance sheet deleveraging has enabled enough cushion to be built into corporate balance sheets.

And that has helped them navigate the volatile environment, be it the COVID era that we have seen, the Russia-Ukraine conflict that we saw, the US tariff regime uncertainties, or the more recent West Asia conflict. So that is something which is holding corporate credit quality in good stead, the balance sheet strength. Having said that, I think, very clearly, we are likely to see companies focusing on diversifying their supply chains, strengthening their sourcing strategies, and maintaining cost discipline to further bolster their resilience.

Right, and I'm going to spend a little while on supply chains and what's been happening. But Rajni, let me start with you with a slightly broader question. So, any supply shock, beginning with COVID, which was not a supply shock but a different kind of shock, and then we had the tariff shock.

All of this causes economies, and companies within them, to change the way they do business, and supply chain reorientation is one visible manifestation of that. What else have you seen, maybe not just in the last four months but over the longer period, that changes the structure or texture of the economy going forward?

Rajani Sinha

So, Govind, one thing is what you said, this diversification, which we have seen in our economy, both in terms of our export destinations. If I look at it from an external sector perspective, we have seen it both from the perspective of our export destinations and our import sourcing. So even for crude oil, we saw that during the crisis, we managed to reduce our dependence on the West Asia region and got oil from other sources, like Russia and the US.

So, yes, that's one aspect. The other aspect which has been helping us, I would say, is the lot of reforms that have happened in the last few years. It looks like we are seeing some resilience in the economy because of that.

If you simply look at the GDP data that has been coming out, it has been beating market expectations. Even the fourth quarter GDP data that came out showed growth higher than market expectations, even though the West Asia crisis was, in fact, only present for one month of that quarter. But still, the market was not expecting the 7.8% growth that we saw. So I would say that, over a period of time, a lot of reform measures that have been announced are bearing fruit. If I look at the breakup of GDP, we are seeing a lot of concern around what's happening on the investment front.

Is it only being led by government? Is the private sector investing? But if you look at the data, investment growth has been quite good in the last quarter.

And that has happened in spite of the fact that central government as well as state government CAPEX in the fourth quarter had actually fallen; it had contracted.

So, basically, that shows that it was led either by private CAPEX or household CAPEX, which would mainly be investment in dwellings. Those are positive aspects which we are seeing. And, like you mentioned, post-COVID we have been hit by a lot of shocks.

We had the Russia-Ukraine war and then the tariffs, and still the economy has been doing better than what the market was expecting. And again, one more aspect I would like to highlight is our services exports, which have been doing very well. And I spoke about that earlier too.

And it's not just IT/ITES; our other business consulting services, which is basically GCCs. In spite of everything that's happening, and the concerns around AI and what's happening in the IT sector, our GCC sector has been recording very good growth in exports. And that's something which has been supporting the economy.

So I would say it's a combination of factors.

Right. Manas, if I can put the same question to you. So let me add some context to it.

So obviously, in the last four months, we've expanded our sources of fuel supply, some for geopolitical reasons, particularly from the Americas, and others because we had no choice. Now, could some of that change again? I was, for example, looking at a report just a few hours ago that Qatar Energy has issued a tender to sell crude for July to August.

So, people have to bid, and that will get picked up. Qatar Energy was perhaps not in the reckoning a few days ago, but now it has entered the market. Others, presumably, will too.

So what could happen?

Manas Majumdar

So, in a general, ideal sense, one would want to keep a certain set of sources. Diversification is one way of addressing the crisis at hand, but it's also about building resilience. But we had gone up to 45-plus sources.

That is a little too untenable, if I were to put it that way. Eventually, in strategic consulting, we do advise our clients to have a balanced portfolio and to reduce the tail. And this is where we are actually essentially bordering on the tail.

But you literally had no choice, because you were looking at spot cargoes; you were literally looking at in-transit cargoes at the point, to ensure that you were able to feed your refineries rather than just drawing down from storage tanks, etc. And India doesn't have that much crude reserves to start with, and no gas reserves to speak of at all. So, to that extent, I do believe some rationalisation of the sources is coming.

And I'll tell you why: because there is also an impact in managing the sources and the contracts thereof, because there are a variety of contracts and price indexation for each of those contracts. There are also shipping and chartering charges. Those have also gone through the roof.

What we are seeing at the end is the delivered DES price at our ports here. But that is a buildup of the price at which you are sourcing it and then shipping it. And both have essentially gone through a change.

So, to really manage that, you need to bring that down, because you need to rationalise your shipping routes as well, which then goes back to the sources you are actually procuring from. So I think the logical answer is yes, it will rationalise. How soon it will happen, though is a little difficult to say, given that we are not quite out of the woods yet, but hopefully soon.

Right. And similarly, on the demand side, for example, obviously some demand contraction has happened, or ought to have happened, caused also by lack of supply, let's say, in gas. Do you see any shifts there, or will we go back to our previously high levels of consumption and demand?

Manas Majumdar

I do expect demand to come back sooner, because honestly I don't think there was as much demand contraction as I would use the word demand management, because you were just not provided the supply, as certain segments were prioritised more. So it did mean that many commercial establishments moved to induction, electricity, and, of course, PNG, piped natural gas, to that extent.

So there was some degree of prioritisation, which was a combination of supply sourcing plus demand management. That would come back faster, the demand side of it. The supply side, as I said, production really hasn't increased. The supply chain has eased.

So therefore, the price overhang that we potentially expect is basic economics. If demand comes back faster than supply does, what is eventually going to impact is price.

And Somashekar, I want to pick up a point that Rajni made on CAPEX in general and private CAPEX. How are you seeing that, or how are you looking at, or seeing, CAPEX, particularly in the sample sets that you're looking at?

Somasekhar Vemuri

So very clearly, if you look at the last three or four years, there have been multiple shocks. We just discussed COVID, the Russia-Ukraine conflict, the US tariffs, and the latest West Asia conflict. So corporate India has been navigating a lot of uncertainty.

And in that context, I think they've been staying away from investing significantly, keeping an eye on capacity utilisation levels, and trying to ensure that there is demand certainty. Having said that, those sectors which are infrastructure-linked, where the government continues to invest and support CAPEX, are sectors like steel and cement, where we have seen, and will continue to see, capacity coming in. Also, as a country, given that on the power side we want to ensure thermal power, we are seeing some investments happening. The renewable sector continues to see a lot of investment as well. And the PLI-driven segments, where the government is incentivising certain indigenous manufacturing, are the sectors where we are seeing CAPEX happen.

Otherwise, given the shock after shock that has come in, I think we are not seeing it very broad-based. It is more sector-focused, those sectors which are dependent on government infrastructure spend, and PLI is where we have seen a lot of traction.

Right. So, Rajni, a lot of angst that descended on the system was obviously linked to the rupee. Now, up to a point, we did see crude oil prices going up and the rupee depreciating.

Now, at this point, crude oil prices have, of course, dropped, and they are below $73 a barrel. So that would suggest that, if they remain where they are, our import bill should not be under as much pressure as before. But do you see that translating in any way into the rupee getting stronger, or is that a longer-term and structural matter?

Rajani Sinha

So, Govind, even before the recent positive development on the West Asia crisis front, we were of the view that the rupee would be in the range of 92 to 93. And this was mainly based on the expectation that the rupee had already factored in all the negatives. It had been weakening even before the West Asia crisis started.

And hence, we were of the view that any positive development on the West Asia crisis front would see some strengthening of the currency from those levels. To some extent, we have seen that playing out. The other big factor that was putting pressure on the rupee was mainly capital flows; we were seeing strong FII outflows, and FDI net flows had been very weak.

So those aspects were putting pressure on the rupee. Again, on those fronts, there have been positive developments with the recent announcements by the RBI and the government. We are already seeing good FII inflows coming into the debt market.

So, in that sense, I do see support for the rupee. We are of the view that it could be around the 92-93 level going forward.

Okay. So you are not seeing any sharp appreciation in the near term. And I will come back to closing remarks on that as well, Rajni.

So, Somashekar, let me start with you. Last question, really, to all of you. So, given all of this, and where we have come so far, what is your outlook?

Somasekhar Vemuri

So, clearly, from a credit quality perspective, we continue to maintain a stable outlook, though there is a tinge of caution stemming from the fact that this is a fragile sort of calm right now. It is still not fully final; the deal is still being discussed. So any further escalation is going to be an issue that we need to monitor.

And the other thing is the monsoon, the El Nino effect. And if we have a weak monsoon, what that means for rural incomes, and hence rural demand and consumption demand, is also something we need to look at. In the month of June, I think there has been a good amount of deficit in rainfall.

But typically, July and August are heavier; almost 35% of the overall rainfall in each of these months has typically been the past trend. So we'll need to see how the monsoon catches up, and whether we'll be able to make up for the deficit.

The forecast is that it will be a weaker monsoon. But the spatial distribution is also something we'll need to watch out for, and what impact it has. But overall, given the strong corporate balance sheets, continued government spending, and consumption demand that still seems to be there, our outlook on corporate credit quality is one of stability.

Okay. Manas, what's your outlook for oil and gas, in a very broad sense?

Manas Majumdar

Sure. I think the way I would see it is that this has clearly been a hiccup. But what this hiccup has helped do is stretch the legs of the sector's resilience, right?

Both in terms of sourcing, demand management, and looking at alternatives, there has been a significant push towards biofuels and even piped natural gas, where pipelines were not getting laid. So I think those will allow for some of that flexibility and resilience to develop. Demand, I do believe, was there and will come back.

I think the only challenge is that, if there are no further hiccups, we could return to previous growth levels. And that uncertainty is the only, I would say, dark cloud in all of this, because that uncertainty leads to delays in CAPEX cycles, which, for example, could delay downstream refining and petrochemicals, as well as upstream, which is immensely required and will be another strong leg of India's resilience, because we haven't started producing or developing wells and fields as much as we should. So some resilience, yes, I think that's been a discovery.

As Churchill said, you should use each crisis as an opportunity. I think India has shown that, to that extent. But how long the uncertainty persists will have some longer-term implications.

And there's definitely been a very hard push towards piped natural gas, and many people who did not consume it earlier are now doing so. So those are some of the changes that have been triggered, or accelerated, by this crisis.

Rajni, last word. What's your outlook for the economy, in a broad sense? I know we started there, but I did bring in the angle of the rupee just now. So, if you were to now look at a composite picture.

Rajani Sinha

So overall, I would say the outlook has improved. But there still remains a lot of uncertainty, even on the West Asia crisis front. So we would remain cautious on that front.

The other important thing that everybody is concerned about is the weak monsoon. But here, I would like to highlight that, as per our study, over the last few years, the impact of a weak monsoon on agricultural GVA growth, and on India's overall GVA growth, has relatively reduced. But still, a large portion of our workforce is employed in the agriculture sector, and a large part of agricultural income, more than 50%, does come from crop production.

To that extent, yes, a poor monsoon will have an impact on rural demand. But I would like to highlight that the impact has relatively reduced over time. So we should keep that aspect in mind.

And, like we discussed, the spatial distribution and all of that would also be a critical factor. Broadly, I would say that the outlook has improved. Now the focus is, let's just hope that the West Asia crisis comes to an end soon.

And then we'll have to see where crude oil prices settle, at what level. It is likely, we still feel, to be higher than what we are seeing now.

Right. So we've come from the worst case to a possible best case, and from a shortage of oil to now a shortage of water, which we will have to grapple with for the coming months. So thank you all for joining me and sharing your thoughts on the Core Report Weekend Edition. Thank you.

Thank you.