New Delhi [India], December 16 (ANI): In Financial Year 2027, the monetary easing is set to drive the above-trend growth of 7.5% amid the expectations of continuous fiscal tightening, said India Market Outlook 2026 Report by Axis Capital on Tuesday.

'We expect the monetary easing to drive above-trend growth of 7.5%. Fiscal tightening is expected to continue, though it would be much slower at 20 bps, but the revival in credit growth in response to much easier monetary conditions is a significant tailwind, as is regulatory easing e.g., EoDB, revoked QCOs, new labour codes, the report said.

'We also believe that consecutive years of 7%- plus growth is likely to trigger upgrades to trend-growth estimates by various forecasters.'

Inflationary pressures are expected to remain contained despite faster growth. Axis Bank Research forecasts headline CPI inflation to average around 4% in FY27, citing persistent economic slack and weak underlying price pressures. Median inflation, a key indicator of demand-side pressures, has remained close to 3% for the past 18 months, signalling limited risk of overheating.

Highlighting the recent GST reforms, the report said the changes were not only a fiscal boost to growth, but also a simplification, and made the government's stance more contemporary, as in today's India, small cars are not luxury goods, and branded FMCG products do not warrant high rates.

These changes should improve compliance, reduce disputes, and cut some working capital strain from delayed tax credits. As evidenced by unchanged borrowing targets for FY26, this consumption stimulus (~0.5% of GDP) is offset by the compensation cess being subsumed, making it broadly neutral fiscally.

On the fiscal front, the pace of consolidation is projected to slow further, with the budgetary deficit declining gradually to about 4.2% of GDP in FY27. Lower borrowing pressures, combined with better debt management and rising demand for government securities, could push the 10-year G-sec yield down to around 6.1% by FY27, the report said.

Externally, India's balance of payments is expected to remain stable. A weaker real effective exchange rate has improved competitiveness, while strong growth in services exports is likely to offset higher non-oil imports. The current account deficit is projected to widen modestly to about 1.3% of GDP in FY27, a level the report describes as manageable. (ANI)