MUMBAI: Structural and regulatory reforms, lower borrowing costs, accelerated capital formation, benign inflation and a cyclical boost from policy easing will help the economy gain more momentum in FY27, growing at 7.5% according to a private forecast.
According to Neelkanth Mishra, the chief economist at Axis Bank and head of research at Axis Capital, the economy can sustain above-trend growth without inflationary pressures given economic slack. He told reporters here Tuesday that he expect the economy to post an above-trend, above-consensus growth of 7.5% next fiscal.
Mishra bases his optimism on several drivers including receding fiscal drag, supportive monetary policy, structural reforms and regulatory easing.
He also said improved financials, low cost of capital, and high-capacity utilization would lift capital expenditure in FY27. Sustained TFP (total factor productivity, which essentially measures the technology behind production, rather than just the quantity of resources used) gains and a rebound in capital formation would support the growth outlook, he added.
Mishra also sees headline inflation printing in at 4% in FY27 as median inflation, which is a better gauge of underlying price pressures, has been stable at 3% for the past 18 months signalling persistent slack in the economy.
His 4% forecast is despite above-trend growth and a likely rebound in food prices.
On the monetary easing side, he does not see any more repo cuts as he feels that the policy rates have likely bottomed, but money supply can rise further to aid monetary transmission and credit growth; supply-side measures can reduce the yield curve steepness.
He also expects 10-year yields to drift close to 6% in FY27 from over 6.60% now.
On the rupee fall, he says the ongoing weakness has brought the REER (real effective exchange rate) to competitive levels.
He 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 Q2/Q3 of FY26 will likely abate.