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Informist, Tuesday, Dec. 16, 2025

 

NEW DELHI – The Indian economy is likely to grow at 7.5?ch in the current financial year ending March and in 2026-27 on the back of monetary policy easing already in place, according to Axis Bank. Regulatory reforms by the government are likely to continue, which would boost growth over the medium-term, the bank said in its 'India Economic and Market Outlook'.

 

"Headwinds to growth from mostly intended fiscal and largely unintended monetary tightening that slowed the economy in FY25 have abated, resulting in the growth revival in FY26," Axis Bank said. A slower pace of fiscal consolidation in FY27 — the bank expects the fiscal deficit to ease to 4.2% in FY27 from this year's target of 4.4% — should also support economic activity next year, it said. 

 

Axis Bank's GDP growth forecast for the current year is higher than the Reserve Bank of India's projection of 7.3%. The Indian economy grew faster than expected at 8.0% in the first half of FY26, but growth is projected to slow in the second half of FY26. The Asian Development Bank last week raised its forecast for India's GDP growth in FY26 by 70 basis points to 7.2% and retained it at 6.5% for FY27.

 

Trend growth in India can exceed 7%, but it is at least 7%, Neelkanth Mishra, chief economist at Axis Bank, said at the launch of the report. 

 

"Given significant economic slack, growth can stay above-trend for a while before inflationary pressures warrant policy tightening," the report said. "While labour growth and global demand remain modest, sustained TFP (Total Factor Productivity) gains (1.5–2%) and a rebound in capital formation, led by manufacturing, utilities, and real estate, support a 7% trend growth outlook. FY27 consensus appears conservative."

 

The bank projects CPI inflation to average 1.8% in FY26 and then rise to 4.0% next year. CPI inflation rose to 0.71% in November from the record low of 0.25% in October. The RBI has forecast CPI inflation in FY26 at 2.0%.

 

Mishra said inflation rates could see a change once the new CPI series with 2024 as the base year is launched in February by the statistics ministry. The ministry will also release a new GDP series with FY23 as the base year. Mishra said the absolute size of GDP may change with the new series, but growth rates are unlikely to change substantially.

 

Any changes in inflation and growth rates from the new series are unlikely to be "potent enough" for the RBI to change its monetary policy stance. Inflation is unlikely to rise to a level that would necessitate interest rate hikes by the RBI's Monetary Policy Committee in the medium term, Mishra said. Axis Bank expects the repo rate to remain at 5.25% through FY26 and FY27. The MPC lowered the repo rate by 125 bps in 2025.

 

"Together with better management of the duration of bonds issued, and growing demand, 10-year yields can drift down to 6.1% (by the end of FY27), in our view," the report said.

 

Axis Bank expects depreciation pressures on the rupee to abate "with the REER (real effective exchange rate) falling sharply, and BoP (balance of payments) trends supportive". The rupee has depreciated by over 6% against the dollar in 2025. The rupee fell below 91 per dollar on Tuesday, closing at a record low of 91.03 per dollar.

 

"Looking ahead, the base case is for 'mild, not wild' depreciation of the INR against the USD," Axis Bank said. "The sharply weaker REER (now at its lowest since 2018), and ongoing reforms to improve the ease of doing business are supportive of sentiment and could incentivise fresh inflows over time."

 

The bank projects the rupee to be at 90 per dollar by June 2026 and 92 by June 2027, with the pace of depreciation contingent on the evolution of capital flows and global risk appetite. Axis Bank projects the current account deficit at 1.2% of GDP in FY26 and 1.3% of GDP in FY27.  End

 

Reported by Shubham Rana

Edited by Saji George Titus

 

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