FY27 Outlook: India To Grow At 7.5% With 4% Inflation, Says Axis Bank’s Neelkanth Mishra

India's economic growth for the next fiscal 2026-27 (FY27) is pegged above trend growth seen so far as the the pace of fiscal consolidation should slow further, according to Neelkanth Mishra - Chief Economist, Axis Bank and Head - Global Research, Axis Capital. The lead economist eyes India's real GDP growth at 7.5% for FY27 and the headline inflation is likely to average at 4%, which meets the target set by the Reserve Bank of India.

According to Axis Bank, India's fiscal and monetary headwinds are receding as the GDP growth picked up in FY26. Going further, the lagged effects of monetary easing should become visible as the headwinds to growth from fiscal and monetary tightening have abated, as per Axis Bank's outlook.

In an exclusive interaction with NDTV Profit on Tuesday, Dec. 16, Mishra said that currently there has been a significant amount of slack in the economy due to labor market easing. According to Mishra, India is the only large economy in the world where the workforce is expanding and the growth is also trending around 5-7% below the pre-pandemic path.

"This is showing up in various ways as real wage growth is weak and there is low-end consumption except during stimulus periods. So, there is slack in the economy, which means we can run the economy faster than trend growth without having an immediate pressure of inflation," he said.

In FY25, fiscal and monetary tightening happened and fiscal headwinds faded in FY26 and credit growth is yet to pick up. "In FY27, we expect that fiscal headwinds will be a lot more moderate. But, the monetary easing can provide tailwinds so the growth will be above trend. That's why, India's FY27 real GDP growth is pegged at 7.5%," said Mishra to NDTV Profit.

According to Mishra, so long there is slack in the economy, there's no need to respond just to the growth rates. Policymakers are now questioning the slack in the economy. ''Suppose there is a 5% slack in the economy and the trend growth is 7%, so we can run the economy at 8% for five years before the slack is closed, which is when sticky inflationary pressures start to come up," he said.

Also, given that India is likely to see another year of fiscal consolidation, it suggests that the monetary policy can be slightly more relaxed, given that fiscal is still being curtailed. "I don't think we'll reach inflation where the policy needs to be tightened. Will inflation pick up from here, is the bigger question," said Mishra.

India's headline inflation picked up slightly in November and is starting to normalise. Food inflation vs core inflation is at the lowest band, so it is going to rise from here, but we don't expect core inflation to accelerate much till labour market slack is full, which is sometime away," said Mishra.

Axis Bank forecasts that the FY27 headline inflation is expected to average 4%. The median inflation has been stable near 3% for 18 months signals persistent slack in the economy and the policy rates have likely bottomed. The money supply to the economy can rise further to aid the monetary transmission.