India Set for Real GDP Growth of 7.5% as Inflation Remains Stable
Axis Bank’s chief economist, Neelkanth Mishra, predicts an optimistic economic outlook for India, expecting a real GDP growth of 7.5% in the upcoming fiscal year. This growth is anticipated in tandem with headline inflation staying comfortably within the Reserve Bank of India’s (RBI) target range.
Key Economic Insights
– GDP Growth Projections:
– Real GDP Growth: Projected at 7.5% for the next fiscal year.
– Trend GDP Growth: Expected to be around 7%.
– Factors Driving Growth:
– Structural and regulatory reforms.
– Reduced borrowing costs facilitating investment.
– Accelerated capital formation.
– A cyclical uplift from ongoing policy easing.
Mishra noted that these elements, combined, will help sustain above-trend growth for a few years without triggering significant inflationary pressures.
Inflation Outlook
– Inflation Forecast: Mishra anticipates a headline inflation of approximately 4% for FY27, despite the projected economic growth.
– Economic Slack: Due to existing slack in the economy, Mishra argues that inflation will not reach levels that would prompt a tightening of monetary policy.
– Stable Median Inflation: Over the past 18 months, median inflation has remained stable at around 3%, indicating persistent slack.
Monetary Policy and Currency Insights
– Monetary Policy:
– Mishra expects the RBI to maintain a softer monetary stance, suggesting that policy rates have likely reached their lowest point.
– He indicates that alternative monetary tools, like treasury bills and shorter-duration bonds, could be utilized to enhance credit growth.
– Currency Trends:
– The recent depreciation of the Indian Rupee is deemed more speculative than fundamentally driven.
– With a supportive balance of payments trend, Mishra anticipates that the pressure on the currency will subside.
Challenges for Exporters
Mishra has highlighted that Indian exporters are facing challenges from aggressive Chinese pricing strategies, which threaten their competitiveness. He believes exporters may need to explore alternative markets to sustain their growth trajectory amid these intensifying pressures.
Conclusion
Overall, Neelkanth Mishra’s analysis paints a promising picture for India’s economic future, with a projected 7.5% real GDP growth supported by favorable inflation dynamics. As the economy navigates through potential challenges, the foundational reforms and lower borrowing costs could create an environment conducive to sustained growth over the medium term.