Axis Bank Projects 7.5% GDP Growth, Remains Unconcerned About Rupee Fluctuations

Axis Bank has projected that India’s economy will grow by 7.5% in real terms for the fiscal year 2026-27, surpassing the broader consensus estimate of 6.8%. Neelkanth Mishra, the bank’s chief economist, expressed confidence in the country’s economic trajectory, attributing potential growth to easing macroeconomic headwinds and the positive impact of structural reforms. Despite recent fluctuations in the rupee, Mishra reassured that the currency’s depreciation is manageable and does not indicate any underlying vulnerabilities in India’s balance of payments.

Positive Economic Outlook

Neelkanth Mishra, chief economist at Axis Bank, has shared an optimistic forecast for India’s economy, predicting a growth rate of 7.5% in real terms for FY27. This outlook is notably higher than the general consensus of approximately 6.8%. Mishra attributes this positive projection to a shift from stabilization to acceleration, driven by easing monetary conditions and the anticipated benefits of structural reforms. He emphasized that India will continue to be one of the fastest-growing major economies globally, as the effects of recent economic adjustments begin to materialize.

Mishra noted that the growth rate had slowed to around 6.5% in the previous year, primarily due to significant monetary and fiscal tightening. He estimated that fiscal drag and credit constraints had reduced potential growth by approximately 3.3 percentage points. However, he believes that FY27 will mark the beginning of favorable economic conditions, with monetary policy transitioning from a restrictive stance to one that supports growth.

Currency Stability and Market Confidence

Addressing concerns over the recent depreciation of the rupee, which has weakened past 91 to the dollar, Mishra characterized the decline as a “mild but not wild depreciation.” He reassured stakeholders that India’s balance of payments position remains robust, with no structural vulnerabilities to address. Mishra attributed the currency fluctuations largely to speculative market activities and endorsed the Reserve Bank of India’s (RBI) strategy of allowing the rupee to find its natural level.

Looking ahead, Axis Bank’s base case scenario anticipates the rupee drifting to a range of 92-94 by June 2027. Mishra’s analysis suggests that the worst of fiscal consolidation is behind the economy, with expectations of only a minor tightening of around 20 basis points in FY27, compared to 130 basis points in FY25. This easing of fiscal pressure is expected to contribute positively to economic growth.

Structural Reforms and Investment Revival

Mishra highlighted the importance of structural reforms in driving India’s long-term growth potential. He pointed to significant regulatory changes, including the implementation of the Goods and Services Tax (GST) and labor reforms across 16 states, which have collectively introduced 38 major measures. These reforms, such as allowing women to work night shifts, are seen as a “systemic unlock” that can enhance productivity and economic output.

In terms of investment, early signs of recovery are emerging, with corporate capital expenditure, excluding the telecom sector, showing a growth of approximately 15% in the first half of the current fiscal year. As borrowing costs begin to ease, Mishra anticipates the onset of a “golden age for Indian entrepreneurship,” driven by increased investment activity and a more favorable business environment.

Policy Recommendations for Sustained Growth

To maintain the momentum of economic growth, Mishra outlined several policy priorities. He suggested that current 10-year government bond yields, which are hovering around 6.6%, should be corrected significantly towards 6.1%. He criticized the government’s long-duration borrowing approach, describing it as “too much of a good thing,” and recommended a shift towards issuing more Treasury bills to help lower yields.

On the topic of inflation, Mishra advised policymakers against hastily tightening monetary policy, arguing that there remains considerable slack in the economy. He stated that growth rates exceeding trend levels do not necessitate immediate policy adjustments. Axis Bank does not foresee inflation reaching levels that would compel a tightening of policy through 2026, allowing for a more measured approach to economic management in the coming years.

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