Shift in the economy’s tale: Goldilocks to Cinderella: Hindustan Times 29th May 2026

 The Indian economy in FY26 was termed a Goldilocks economy (borrowing from the popular fairytale), a bit of a cliché. But things looked just right and the cliché seemed apt: The growth rate was healthy, inflation stood at just 2.1%, and the external balance was marked by a low current account deficit. This was against the backdrop of the Trump tariff tantrums, making it all the more significant.

However, things have started to change. The picture today seems more like Cinderella’s tale, of having to retreat after a great evening. The West Asia crisis casts a shadow across the world. Many felt Iran would fold soon after the death of Ayatollah Ali Khamenei. But more than two months have passed; each side is claiming victory and the Strait of Hormuz remains shut, leaving economies vulnerable as global fuel and fertiliser markets reflect the pressure from a choked commerce route.

Let us look at what this means for us.

First, the growth rate is sure to be affected. The Reserve Bank of India (RBI) forecasts 6.8% for FY27 though talk elsewhere suggests even 6.5% — well below the 7.6% recorded in FY26. While the Purchasing Managers’ Index — an indicator of the health of the manufacturing and services sector — still looks encouraging, this may not translate to higher growth. There is a base effect at play here.

Second, RBI projects inflation to rise to 4.6% this year; though within the range of the monetary policy’s inflation target, it is higher than last year’s and closer to the long-run average (around 5%).

There are two other factors at play here. One is the retail prices of petrol and diesel. With the Brent benchmark now close to $100/barrel — up from $80-90/barrel assumed by most for the year — the government protected consumers until it had to hike prices. These hikes will impact transport costs as well as input costs for all producing enterprises.

The monsoon is the other factor. While the India Meteorological Department has indicated that it will arrive on time, the total rainfall for the year has been projected at 92% of normal, with El Niño effects in play in the second part of the season — not good augury for food inflation. Any shock here can have a sharp effect on the headline inflation number.

Third, with a high inflation threat in all countries, central banks everywhere have taken a cautious view on interest rates. This includes the Federal Reserve, notwithstanding the pressure from the US President to cut rates. The present outlook in India on inflation is hawkish as there can be an upside to the 4.6% expected. Therefore, it is reasonable to assume that the interest rate cut cycle is over and there will be a prolonged pause on the repo rate. More likely, at least one, if not two, hikes to repo rate towards the end of the year — depending on the data — may not be a far-fetched proposition. This is completely different from FY26’s aggressive rate cuts.

Fourth, there could be some discomfort on the budget numbers front, given the oil situation. The government had projected a fiscal deficit ratio of 4.3% for the year. The change in GDP methodology caused a slight increase — 4.4-4.5%. The issue is whether the projection will hold. The excise cut on petrol and diesel has led to a revenue loss, likely in the range of ₹1.2-1.4 lakh crore. The gas availability situation has led to an increase in fertiliser prices, and the subsidy bill can swell by over 20%. With oil companies probably not making significant profits — or more likely, registering losses — this year, the tax and dividend they pay to the Centre will likely fall, affecting the latter’s revenue. Hence, a deficit slippage looks likely if expenditure outlays remain unchanged. Fiscal management will have to be dexterous to balance these odds.

Fifth, the external account situation will no longer be comfortable. Presently, our reserves cover 11 months of imports — a good showing. But going ahead, there are challenges. The trade deficit could widen as import costs go up due to oil and exports can slow down because shipping routes to the Gulf Cooperation Council (GCC) countries are affected by the war. Remittances from the Gulf will slow down; given that roughly 35% of total remittances to India come from this region, there will be significant challenges from this front. On the c

apital account side, foreign portfolio investors (FPIs) continue to be bearish on India’s equity market. With foreign direct investment (FDI) also being cautious — investors are looking more at the developed world — the inflow could, at best, be stable. The high level of repatriation could continue, affecting net inflows to the country.

Two engines of growth need to be observed. The first is consumption. With all the incentives given by the government in 2025, it was expected that the momentum would be maintained. But oil has played spoilsport, with prices of several products (paints, pesticides, FMCG goods, electronics) and services (airfares, restaurants, etc) rising. With inflation risks, the direction of consumption, especially urban, needs to be watched. Rural consumption will largely be contingent on the monsoon prospects.

The other is private investment. Last year, companies were cautious as the American tariff tantrums cast a shadow. The war has exacerbated uncertainty for FY27 and will warrant a similar approach. With so many factors at play, the Goldilocks story seems set to change — and Cinderella’s midnight bells could chime at some point.

India's policy makers stare at a set of gloomy tradeoffs: Mint 22nd May 2026

 https://www.livemint.com/opinion/online-views/india-monetary-and-fiscal-policymakers-gulf-war-inflation-exchange-rate-budget-rbi/amp-11779308278027.html

A few suggestions to control the volume of gold imports : Free Press Journal 21st May 2026

 T he rupee has been under relentless pressure of late, and one of the factors contributing to the same is imports. Within imports, oil is the major component, which has been a challenge for the government as the price has been above $100/barrel with the closing of the Strait of Hormuz. The issue of gold imports has come to the discussion table again, with a call being made to lower the demand. Is this possible? And if so, what are the options?

The data on gold imports is interesting. They have peaked at $72.4 bn in FY26. Ten years back, they were at $31.7 bn, which means that they have more than doubled. However, when one looks at the quantity imported, the picture is very different. Imports in FY16 were at 968 tonnes, which was overtaken in FY19 at 982 tonnes. Subsequently, the trend has been downwards. It came down to 651 tonnes in FY21, which had one month of Covid-19. It increased to 879 tonnes in FY22, as gold became a safe haven for investors, and has trended downwards subsequently. It was at 795 tonnes in FY24, 757 tonnes in FY25, and 721 tonnes in FY26.

This has some interesting implications. The first is that imports have come down for sure in physical terms. However, with the price of gold rising sharply due to the tariff crisis followed by war, the imported value has gone up.

Second, the demand comes mainly from individuals, who invest in gold as a saving habit, and from ETFs, which buy in bulk. Now, the individual demand would have been affected by the higher price and their purchases affected. Typically people buy gold with a budget in mind.

For the better-off persons, the target would be in quantitative terms of 100 gm or 50 gm. For the lower income groups it would normally be a monetary limit of Rs 1000, 10,000, or 1 lakh. The former would not be affected for sure, as cost does not matter. But for the second category, a lower quantity would have been purchased.

Third, the investments of the ETFs would be high. The AMFI data shows that in FY21, the assets under the management of gold ETFs were around Rs 14,000 cr. which in five years has risen to Rs 1.7 lakh crore in FY26. Now typically, the ETFs keep a physical backing of 90-95% of the value of the commodity. Intuitively, it can be seen that this has contributed to the demand for physical gold, with the price being less relevant, as there is a natural hedge in the value of gold and the fund.

Are there ways to control this proliferation in gold imports?

There are options, and a call needs to be made. First, at the extreme, one can put quotas on the amount of gold that can come in. This is not feasible, as it will encourage smuggling and also create a black market for these licenses.

Second, a tax or duty can be imposed to push out some part of the demand. This is what has been done by the government by increasing the customs duty on both gold and silver by 9% from 6% to 15%. Here the lower income group, which buys based on a limited budget, will be affected. Higher income groups may not quite limit their purchases, as this may not matter. But a higher duty will push up the cost of gold, which will impact the CPI inflation numbers and, hence, have a bearing on the monetary policy. Therefore, this is not straightforward, and the trade-off has to be kept in mind.

The third option is to go back to the sovereign gold bonds, which worked well, as they did wean the investor away from the physical handling of gold. Here, there will be some serious discussion, as the government has been redeeming existing bonds prematurely, given the holding cost. Therefore, this will again be a tough call.

Fourth, gold deposits were also on the table, but this would mean parting with gold, which practically speaking may not be agreeable to those who like to keep it in lockers and remain anonymous. It will work if those holding the gold deposit it in banks, which, in turn, will sell it on the market. But such deposits have to be returned to the holder, which will mean taking a price risk. This may make it less feasible.

Fifth, another option is to push investors to future markets, where certain tax benefits can be given so that an avenue opens up which does not involve physical gold. In fact, non-deliverable contracts can be introduced by MCX and NCDEX to garner interest. The only cost for the government would be in the tax foregone, which would be much lower than the cost borne by the SGBs.

The last option is to do nothing and treat this as being transient. In fact, such issues have come up periodically, which has affected the import bill. The problem today is not so much the amount of gold being imported but the cost. This price is determined globally, and there is little that price takers can do about it.

In fact, curiously, central banks have been diversifying their forex assets by buying more gold. While these numbers do not enter the trade numbers, as they are dealt with independently by central banks, the international price has gone up due to this demand as the purchases tend to be of high value.

For example, the RBI held 653 tonnes of gold as reserves in March 2020. This rose to 880 tonnes in March 2026. A similar motivation of diversification, hence, also holds for households that buy and hold gold for similar reasons.

The government can consider all these options to control the volume of gold imports. This will become important if the West Asia crisis gets prolonged, putting the balance of payments under pressure.

The case for a bond issue to boost reserves : Businessline 20th May 2026

 The falling rupee is being watched closely with a clarion call being made to lower forex spending, which includes purchase of gold, foreign travel or use of petrol-diesel vehicles. There is also a discussion on the necessity of shoring up our forex reserves through either a bond issuance, or a swap that was done earlier. How serious is the issue today?

The declining rupee is a concern as the fundamentals of our balance of payments show that demand is higher than supply for forex. But is this leading to a crisis? The answer is ‘no’ because with reserves of around $690 billion, there is an import cover of 11 months. Anything above eight months is comfortable, and concerns can arise when it falls below this threshold.

The situation is not akin to 2013 when there was a sharp fall in reserves and the RBI came up with the swap plan. At that time India was part of what was called the ‘fragile five’ countries. In 1998, to deal with sanctions imposed due to Pokhran nuclear explosions, the RIBs (Resurgent India bonds) were issued. In 2000, India Millennium bonds were floated in the wake of an oil crisis. The present situation is not as alarming.

Petrol, gold and an Indian middle class that may get into debt to pay for it all: Indian Express 15th May 2026

 The principles of economics say that to reduce demand for any product, there can be quantitative or price actions. If there are restrictions on how much can be bought, demand will come down. Alternatively, the price can be increased to the extent that people buy less. Now, quantitative restrictions are difficult to administer in a large country and invariably lead to the creation of a black market. Therefore, price changes are preferred. Following the Prime Minister’s advice to consume less gold and petroleum products, the government has opted for price changes for both.

The duty on all precious metals has been increased from 6 per cent to 15 per cent. This makes gold and silver, which are big-ticket import items, more expensive. The idea is to make it more costly for consumers to buy. Now, there are basically three categories of consumers here.

The first is the affluent class, which is agnostic to price changes and will buy gold even if the price goes up.

The second is the non-affluent class, which is more price sensitive. In fact, the absolute quantity of gold imports has come down over the years from 795 tons in 2023-24 to 721 tons in 2025-26. But the value went up from $ 45.6 billion to $ 72.4 billion. Quite clearly, the bull run in gold due to global uncertainty, especially after tariffs were imposed by the US, led to higher imports. But demand came down.

On an annual basis, the price had increased by 30 per cent in FY25 and 52 per cent in FY26. Interestingly, the price of gold rose prodigiously on a monthly basis from $ 3,363/ounce in August 2025 to $ 5,019/ounce in February 2026, before coming down to an average of $4,723/ounce in April. Against this background, higher duties will further push back consumption for this class. However, when the demand is for traditional purposes like marriage, people tend to borrow money (unsecured personal loans) to buy gold, leading to unchanged demand but higher indebtedness. And ironically, the same gold can be used for further leverage under the category of gold loans!

The third category of demand is ETFs. Gold ETFs have become popular due to the bull run in prices. People invest in them, expecting the price of gold to rise, thus drawing the benefit without having to physically buy gold. However, the fund has to physically maintain 95 per cent of its value, which adds to demand. Now, these funds would not be sensitive to price, as this gets added to the value of gold and the NAVs.

It does look like the bull run in gold is over, and that the upside to price may be limited. If this view is held, then there would tend to be less interest in gold ETFs. Even so, the increase in duty of 9 per cent would translate into higher inflation as this segment has a weight of 1.2 per cent in CPI.

Similarly, the government has increased the price of petrol and diesel by about Rs 3 per litre. This comes on the back of an increase in the price of CNG by Rs 2, and that of LPG by Rs 60-Rs 993 depending on the category of consumers. Hotels and restaurants have had to cut back on their menus due to the cost of gas. Now, the higher prices for vehicle fuel may not have much impact on demand due to alternative modes of transport being available. But the OMCs will benefit, albeit partly, on this score, though there are still losses to be covered.

The impact on inflation will, however, be sharp. Petrol and diesel have a weight of around 4.9 per cent in CPI, which will react in the next inflation print and show an increase of 0.14-0.15 per cent. The second round would be on transport costs, and the tertiary impact will be determined by how other industries pass on this cost. The price of ATF was also increased earlier in April. Hence, the entire fuel basket will have a clear inflationary impact.

The entire response to these two moves needs to be watched. The price impact is easier to conjecture. However, on the side of physical demand, it can still be a shoulder shrug, or, as Bertie Wooster would ask: Has the bally thing worked?

Fuel price hike may push back the consumption story amid higher inflation: Business Standard May 15th 2026

 It was expected that the government would finally raise the prices of petrol and diesel. The questions were when and by how much. Now that there has been a Rs 3 per litre increase announced, the next question is whether this is the be all and end all, or will there be further hikes. On the face of it, there could be more coming as this will only partly address the under recovery challenge for oil marketing companies (OMCs). What does this mean for the economy?

 

The evident apprehension is on inflation, which will be impacted. LPG price were hiked to begin with after which came ATF. More recently the CNG price was increased, and now retail prices of petrol and diesel. The last two have a weight of nearly 5 per cent in the CPI and it is easy to gauge the initial impact.

But there would be secondary and tertiary effects. Transport costs such as taxi and auto fares as well as trucking would increase. This is something that needs to be watched as it has wider ramifications. The tertiary effects will be seen when transport costs go up as most commodities use these services. This will push up the input costs of production and possibly raise the question to corporates on whether there should be a fresh round of price increases.  

Companies in the chemicals sector, real estate, glass ceramics etc. have already announced increase in prices. This can become wider given the spike in fuel prices. We have already seen the WPI witnessing an increase of over 8 per cent in April, which reflected the impact of higher crude prices. Now it will manifest in retail prices too. 

Higher inflation can come in the way of the consumption story that was to play out this year. Lower inflation coupled with GST cuts and income tax rationalization helped to boost consumption in fiscal 2025-26 (FY26). Things will change this year and consumption can be pushed back with higher inflation. It looks likely that inflation will cross the 5 per cent mark for sure even if we disregard the El Nino effect. Therefore this will be a concern especially for consumer durables and FMCG companies. 

Slowdown in consumption will come in the way of private investment, which can now turn further cautious on taking such decisions. 

More importantly, the monetary policy committee (MPC) can no longer ignore the inflation impact, and hence it looks more or less certain that there cannot be any further rate cuts. There is only a case of rates going up and the future discussion will be on when and the quantum of rate hikes. 

 

Presently with inflation for April being benign at 3.5 per cent, the June policy can look through it. But the speed with which these numbers can rise will be important. WPI had leaped from 3.9 per cent to 8.3 per cent in a month’s time. While the quantum of increase may not be this sharp, the May number will reflect the primary effect  for sure (with even gold becoming dearer and getting reflected in the personal care group). 

Quite clearly the oil shock of 2026 will have a deeper impact on inflation across the world. We will not be insulated as higher inflation can finally also affect growth indirectly. This is something that requires closer monitoring.

Affluence creates jobs: the top of India's pyramid plays a vital role: MInt 11th May 2026

 https://www.livemint.com/opinion/online-views/indian-affluence-economy-wealthiest-billionaires-luxury-premium-market-job-creation-11778159088405.html#google_vignette