India’s GDP growth in FY27 to average 7.3 pc, monetary policy closely focused on inflation: Economist

New Delhi: A DBS Bank economist on Tuesday said it expects India’s growth in FY27 to average 7.3 per cent, as external position remains supported by stronger capital flows.

India’s economy started FY27 on a strong footing, with Q1 FY27 growth at 7.8 per cent year-on-year, supported by resilient domestic demand, consumption, public capex and manufacturing.

“High-frequency indicators such as GST collections, e-way bills, electricity demand and digital payments continue to hold up. However, growth is expected to moderate in the second half of FY27 as tighter financial conditions, elevated energy prices and base effects weigh on momentum,” said Radhika Rao, Senior Economist and Executive Director, DBS Bank.

August inflation rose to 4.8 per cent, with pressures emerging across food categories including sugar, milk, protein groups and edible oils, alongside higher energy and transport costs.

Below-average monsoon rainfall and strengthening El Nino risks could add pressure to upcoming crop output.

Against this backdrop, headline inflation is expected to remain above 5 per cent in the second half of FY27, keeping monetary policy closely focused on inflation risks, according to Rao.

Moreover, the sharp increase in foreign-currency inflows has strengthened India’s external buffers but has also created a significant liquidity-management challenge.

The RBI special swap windows have raised $143 billion, including $133 billion through FCNR (B) deposits, pushing foreign exchange reserves above $780 billion.

At the same time, banking-system surplus liquidity has risen sharply, requiring measures such as VRRR and open-market operations to manage excess liquidity and its impact on yields, said the economist.

DBS expects the FY27 current account deficit at around 1.1 per cent of GDP, while the balance of payments could remain in surplus, supported by capital inflows.

The key areas to watch ahead will be the trajectory of inflation, liquidity management, energy prices, and the sustainability of organic capital flows as the impact of the special swap measures fades, according to Rao.

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