India’s GDP growth will accelerate to 7.5% in FY27, while inflation remains low, says Axis Bank’s Economic Outlook
India’s growth is likely to be above trend in FY27, driven by structural and regulatory reforms, lower borrowing costs, accelerated capital formation, and a cyclical boost from policy easing, according to Neelkanth Mishra, Chief Economist, Axis Bank & Head - Global Research, Axis Capital in the Bank’s Outlook 2026 report. Mishra and the Bank’s economic research team maintain that the economy can sustain above-trend growth without inflationary pressures given economic slack.
City Air News
Dec 16, 2025 04:03
0
Chandigarh, December 16, 2025: India’s growth is likely to be above trend in FY27, driven by structural and regulatory reforms, lower borrowing costs, accelerated capital formation, and a cyclical boost from policy easing, according to Neelkanth Mishra, Chief Economist, Axis Bank & Head - Global Research, Axis Capital in the Bank’s Outlook 2026 report. Mishra and the Bank’s economic research team maintain that the economy can sustain above-trend growth without inflationary pressures given economic slack.
Report highlights:
Axis Bank projects above-trend, above-consensus growth of 7.5% in the world’s fastest-growing large economy.
The authors’ thesis rests on several drivers:
1. Receding fiscal drag and supportive monetary policy to drive above-trend growth of 7.5%. Structural reforms and regulatory easing to boost growth in the medium term.
2. Improved financials, low cost of capital, high-capacity utilization (need for new capex) to lift capital expenditure in FY27.
3. Sustained TFP gains and a rebound in capital formation support a 7% trend growth outlook.
Headline inflation of ~4% likely in FY27, but economic slack to persist
Median inflation, a better gauge of underlying price pressures, has been stable at ~3% for 18 months signalling persistent slack in the economy.
Axis Bank expects FY27 headline inflation of ~4% despite above-trend growth and a likely rebound in food prices.
Policy rates have likely bottomed, but money supply can rise further to aid monetary transmission and credit growth; supply-side measures (more T-bills, shorter-duration bonds) can reduce the yield curve steepness.
Axis Bank expects 10Y yields to drift close to 6% in FY27.
India’s external balance is stable, USD-INR weakness helps
The INR’s recent weakness has brought the REER to competitive levels.
Axis Bank expects the current account deficit to widen a notch, to 1.2% of GDP in FY26 and 1.3% in FY27, while the surge in capital outflows seen in 2Q/3Q of FY26 will likely abate.
