Rising global oil, coal prices pose macro risks for India: Morgan Stanley

However, the handsome exports will ensure that the current account gap remains restricted to 1 percent in FY22, they said. It's Swiss peer UBS said a USD 10 per barrel average increase in global crude prices would widen India's current account deficit (CAD) by USD 14 billion or 0.5 percent of GDP, and if oil prices rise towards USD 100 per barrel, it could temporarily push the CAD to about 3 percent.

In such a scenario, we think the rupee could also temporarily test 78 against the USD, it said. On the growth front, while near-term risks have emerged due to supply- side shortages (semiconductor chips affecting auto sector, coal shortages affecting power generation), at the margin the situation has been stable, and the brokerage expects the impact to be transitory.

High-frequency growth data is improving quickly, with most indicators having moved into positive zone on a two-year CAGR basis, it added. The RBI will start the process of policy normalisation with a 0.15-0.20 percent hike in the reverse repo rate (at which it absorbs excess liquidity) in December and February, it said, adding that the central bank may also hike the repo rate in February if growth improves further.

UBS attributed shortages in coal to understocking during the pre-monsoon months as per normative requirements, regulated supply to defaulting power plants by Coal India, a larger-than-expected rise in power demand on economic recovery, monsoon rainfall leading to floods in eastern and central states with coal mines, leading to logistical issues; and a decline in coal imports. There is little reason for discoms to restrict supply to industrial consumers in power shortages unless there is a policy directive, it said, pointing out that such consumers are the best for discoms.