Will India's FY26 Inflation Hover Below 2% and GDP Growth Reach 7.7%?
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Synopsis
According to a recent report, India's inflation is projected to stay below 2% in FY26, with GDP growth anticipated at a strong 7.7%. This remarkable shift highlights the resilience of the Indian economy, moving from stagflation to a more favorable outlook. Experts weigh in on the long-term implications of these trends for monetary policy and economic stability.
Key Takeaways
- India's inflation projected below 2% in FY26.
- GDP growth expected at 7.7%, a significant increase.
- Only one-third of GST tax cuts have reflected in inflation.
- Potential for further inflation decrease remains.
- Positive economic indicators show transition from stagflation.
New Delhi, Dec 2 (NationPress) India's inflation rate is anticipated to average just under 2% for the fiscal year 2025-26 and is projected to stay below the Reserve Bank of India’s 4% target in FY27, according to a report released on Tuesday.
The inflation figure for October was recorded at 0.25%. The report from HSBC Global Investment Research revealed that only a third of the impact from GST tax reductions has been reflected in inflation thus far, indicating potential for further decreases.
"This isn't solely about short-term GST tax reductions and diminished food prices. We believe that the decline in core inflation during this cycle is more sustainable than in previous instances, which will affect monetary policy," the report stated.
HSBC forecasts an official GDP growth of 7.7% for FY26, an increase from an earlier estimate of 6.9%, with practical growth closer to 6.7%.
While growth is expected to remain robust until December, it may ease in the March quarter as the positive effects of GST cuts wane, fiscal expenditures tighten to adhere to deficit targets, and exports begin to slow due to a 50% tariff, the report suggests.
"The Indian economy appears to have shifted from signs of stagflation just a year prior to a favorable position now. The remarkable GDP growth of 8.2% in the September quarter benefited from both cyclical factors and statistical anomalies," remarked Pranjul Bhandari, Chief India Economist/Strategist, ASEAN Economist.
On the cyclical front, favorable rains, monetary easing, increased fiscal spending, and GST reductions have all aligned effectively, she added.
"We estimate that two deflator issues impacting manufacturing and services may have led to an understatement of the deflator by 1.2% percentage points and an overstatement of real GDP growth," the report indicated.
Meanwhile, last week, the Chief Economic Advisor for the Central Government, V. Anantha Nageswaran, stated that India’s GDP growth for the financial year 2025-26 is likely to exceed 7%, as recent official data revealed that the country’s Q2 growth surged to 8.2% following a robust 7.8% percent increase in Q1.
Point of View
I believe this report underscores a positive shift in India's economic landscape. The projected inflation rates and GDP growth suggest a recovery and stabilization period, which could inspire confidence among investors and policy-makers alike. However, it is vital to monitor these trends closely as they unfold.
NationPress
03/12/2025
Frequently Asked Questions
What is the projected inflation rate for India in FY26?
India's inflation rate is expected to average just below 2% in FY26.
What is the forecasted GDP growth for India in FY26?
The GDP growth for India in FY26 is forecasted at 7.7%.
How does the GST tax impact inflation?
The report indicates that only a third of the GST tax cuts have impacted inflation thus far, suggesting potential for further declines.
What factors are driving current economic growth in India?
Key factors include favorable weather conditions, monetary easing, fiscal spending, and GST cuts.
What implications does this report have for monetary policy?
The long-lasting fall in core inflation may influence future monetary policy decisions.
