Stable India growth outlook masks hit to vast informal sector, say economists: Reuters poll

By Pranoy KrishnaBENGALURU, April 28 (Reuters) - India's economic growth outlook is broadly unchanged despite the U.S.-Israeli war with Iran, according to a Reuters poll of economists who warned that data won't capture an already-notable hit to the country's vast informal sector.The extent of the stress is hard to gauge due to limited real-time figures on fuel costs, jobs, demand and small businesses, although anecdotal evidence points to early strain in the shadow economy, which has previously accounted for almost half of official GDP readings.In cities, where roughly 60% of GDP is generated, many restaurants and hotels have been forced to reduce operating hours, cut menus or switch to using alternative fuels like firewood as the Middle East conflict disrupts supplies of liquefied petroleum gas.Although India's new GDP series has increased data inputs in an attempt to better capture the informal economy, economists say more needs to be done to get a clear picture.India's gross domestic product is expected to grow 6.7% this fiscal year, according to an April 20-27 Reuters poll of 54 economists, in line with March's forecast. That would represent a slight slowdown from the 7.0% predicted for the year to March 31, 2026.Forecasts for fiscal 2026-27 ranged from 5.9% to 7.5%. Growth was expected to edge up to 6.8% in 2027-28."(The informal segment is) the worst hit and its ability to absorb shocks is very low. So we will see a ripple effect...on jobs and demand: all of that is going to play out if this problem persists beyond the near term," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.Yes Bank Chief Economist Indranil Pan said that the disruption to the informal sector would not be captured very significantly by the country's GDP reading. "That’s also the reason why we have not really changed our GDP much at this point in time," he added.Inflation was seen averaging 4.5% this fiscal year, within the Reserve Bank of India's 2%-6% target range but more than double last year’s pace. Still, the RBI will keep interest rates on hold until end-2027, according to the survey.Economists said while the government has tried to shield the economy from price pressures by slashing fuel duties, a prolonged Middle East conflict would hurt public finances and could force a shift in spending away from capital expenditure, a main growth driver amid weak private investment.Aditya Vyas, chief economist at STCI Primary Dealer Limited, said the outlook appears too uncertain for a sudden pick-up in investment that has been lacking for many years."If push comes to shove, there could be a situation where a material diversion of funds from capex to subsidies happens. Price pressures are imminent and will in the medium term affect...the fiscal front."(Other stories from the April Reuters global economic poll)(Reporting by Pranoy Krishna, Polling by Pulkit Khanna, Susobhan Sarkar and Renusri K; Editing by Vivek Mishra, Ross Finley, Kirsten Donovan)