India Could Clock 7.3 Per Cent Growth In FY27, But Inflation Remains At The Heart Of Monetary Policy

New Delhi: India’s economy is expected to expand 7.3 per cent in FY27, supported by resilient domestic demand and stronger capital inflows, according to DBS Bank economist Radhika Rao.

Economic activity started FY27 firmly, with gross domestic product growing 7.8 per cent year-on-year in the first quarter. Consumption, public capital expenditure and manufacturing supported the expansion.

Rao, a senior economist at DBS Bank, said high-frequency indicators, including GST collections, e-way bills, electricity demand and digital payments, remained resilient.

However, India’s GDP growth could moderate during the second half as tighter financial conditions, elevated energy prices and base effects weigh on momentum.

Inflation Risks Return To Focus

Retail inflation accelerated to 4.8 per cent in August as price pressures widened across sugar, milk, protein-rich foods and edible oils. Rising energy and transport costs added to the strain.

Weak monsoon rainfall and strengthening El Niño risks could affect crops and food prices. DBS expects headline inflation to remain above 5 per cent during the second half, keeping the Reserve Bank of India’s monetary policy focused on price stability.

Capital Inflows Strengthen External Buffers

Special RBI swap windows mobilised $143 billion, including $133 billion through foreign currency non-resident bank deposits. These inflows lifted India’s exchange reserves beyond $780 billion and strengthened external buffers.

However, the inflows increased banking-system surplus liquidity. The RBI has used variable rate reverse repo auctions and open-market operations to absorb excess funds and manage their effect on bond yields.

External Outlook Remains Supportive

DBS expects India’s FY27 current account deficit to remain near 1.1 per cent of GDP. The balance of payments could stay in surplus because of capital inflows.

Investors and policymakers will monitor inflation, crude oil prices, liquidity management and the durability of organic capital flows as the impact of special swap arrangements diminishes.