India is likely to post 7.5% real GDP growth in the next fiscal, with headline inflation staying within the Reserve Bank of India’s comfort zone, Neelkanth Mishra, chief economist at Axis Bank, said.
Mishra
pegged trend GDP growth at 7%, but expects real GDP growth to exceed that level, supported by structural and regulatory reforms, lower borrowing costs, faster capital formation and a cyclical boost from policy easing.
“The receding fiscal drag and supportive monetary policy will drive above-trend growth of 7.5%, while structural reforms and regulatory easing will lift growth over the medium term,” Mishra said on Tuesday while outlining his outlook for FY27.
He added that such growth is unlikely to stoke meaningful inflation at least over the next year due to slack in the economy. Mishra projected FY27 headline inflation at around 4%, even with above-trend growth and a likely rebound in food prices.
“Headline inflation will not rise to a level that necessitates monetary policy tightening. Given the economic slack, the economy can sustain above-trend growth for a few years before inflationary pressures build up,” he said. He also noted that median inflation, which he described as a better indicator of underlying price pressures, has remained stable at around 3% for the past 18 months, signalling persistent slack in the economy.
Mishra expects the RBI to maintain a softer monetary stance, even though policy rates have likely bottomed out. “There are other tools to increase money supply and support monetary transmission and credit growth,” he said, adding that higher issuance of treasury bills and shorter-duration bonds could flatten the yield curve and pull 10-year bond yields down to 6% in FY27.
On the rupee’s recent weakness, Mishra said the depreciation appears to be more speculative than fundamental. “With the real effective exchange rate (REER) falling sharply and balance of payments trends remaining supportive, we expect depreciation pressures to ease,” he said, adding that the recent surge in dollar outflows is likely temporary.
He also flagged external headwinds, noting that US tariffs and rising competition from China are weighing on India’s export growth. While exporters may find alternative markets to sustain volumes, Mishra cautioned that aggressive Chinese dumping in overseas markets is hurting Indian exporters and could intensify further.
