Axis Bank has projected a strong growth trajectory for the Indian economy, forecasting a real-term expansion of 7.5% for the financial year 2026-27 (FY27). This optimistic outlook, presented by the bank's chief economist Neelkanth Mishra, suggests that India will maintain its position as the world's fastest-growing major economy.
Beyond Consensus: Structural Reforms to Fuel Acceleration
Mishra's forecast is notably higher than the broader market consensus of around 6.8%. He attributes this positive deviation to a delayed reassessment by some analysts following new economic data. The core of his optimism lies not in a mere cyclical rebound but in deep-seated structural changes within the economy.
He explained that the past year saw growth slow to approximately 6.5% due to significant monetary and fiscal tightening. According to his estimates, fiscal drag from reducing debt and credit constraints shaved off about 3.3 percentage points from potential growth. However, FY27 is expected to mark a turning point, where these headwinds begin to ease and transform into supportive tailwinds.
"FY27 is when the first tailwinds start to appear," Mishra stated, indicating that monetary policy is likely to shift from being a drag to actively supporting growth. He emphasised that the worst phase of fiscal consolidation is behind, with tightening expected to reduce sharply from about 130 basis points in FY25 to only around 20 basis points in FY27.
Rupee Stability and the Path to a "Golden Age"
Addressing recent concerns about the Indian rupee weakening past 91 against the US dollar, Mishra played down fears, describing the movement as a "mild but not wild depreciation." He asserted that India's balance of payments position remains comfortable, with no structural vulnerabilities requiring intervention.
He largely attributed the currency's moves to speculative flows and endorsed the Reserve Bank of India's (RBI) approach of allowing the rupee to find its natural level. Axis Bank's base case scenario sees the rupee gradually drifting to a range of 92-94 against the dollar by June 2027.
On the investment front, Mishra highlighted early signs of a revival. Corporate capital expenditure, excluding the telecom sector, grew by about 15% in the first half of the current fiscal year. As borrowing costs become more favourable, this trend could signal the beginning of what he termed a "golden age for Indian entrepreneurship."
Policy Priorities and Inflation Outlook
To sustain high growth, Mishra flagged key policy areas. He argued that the current 10-year government bond yield, near 6.6%, should "correct significantly" towards 6.1%. He critiqued the government's "long-duration bias" in borrowing, suggesting a shift towards issuing more Treasury Bills (T-bills) to help lower yields.
Regarding inflation, the chief economist advised policymakers against rushing to tighten monetary policy. He pointed to significant slack still present in the economy and stated that growth rates being above trend is not a sole reason for tightening. Axis Bank does not expect inflation to rise to levels that would necessitate policy tightening throughout 2026.
Mishra also underscored the quiet yet powerful impact of regulatory and state-level reforms. He noted that 16 states have implemented 38 major measures, including landmark changes like allowing women to work night shifts and labour reforms. "This is like a systemic unlock," he said, arguing that such steps substantially raise India's long-term growth potential, setting the stage for a robust FY27.
