India’s Economy: H2FY27 Slowdown, FY28 Rebound Forecast
Infographic: India’s Economy to See H2FY27 Slowdown, FY28 Rebound: ICICI Bank
Key Highlights
ICICI Bank forecasts India’s economy to slow in H2FY27 due to a high base effect, but rebound to 7.2% growth in FY28. Repo rate held at 5.25%.
India’s economic growth is projected to moderate in the second half of fiscal year 2027, influenced by a high base effect. However, growth is anticipated to strengthen to approximately 7.2% in fiscal year 2028, according to an assessment by ICICI Bank.
Concurrently, the Monetary Policy Committee (MPC) has unanimously maintained the repo rate at 5.25%, aligning with market expectations and preserving a neutral policy stance. The central bank’s growth and inflation projections saw only marginal revisions, keeping forecasts for H2FY27 largely consistent.
Economic Trajectory and Underlying Factors
The moderation in growth during H2FY27 is specifically attributed to a high base effect. This means that compared to a strong performance in the previous year’s corresponding period, the current growth rate may appear slower, even if the absolute economic activity remains robust.
- H2FY27: Projected moderation due to high base effect.
- FY28: Growth anticipated to accelerate to 7.2%.
Despite global macroeconomic volatility, its impact on India’s economy has been limited. Most high-frequency indicators show robust growth in the first quarter and sustained momentum in the second quarter, signaling resilience.
RBI’s Outlook and Potential Policy Shifts
The Reserve Bank of India (RBI) expects growth to be lower in H2 than in H1 on a high base. The apex bank’s projection of 7.3% growth for Q1FY27 signals an improving growth trajectory leading into FY28, supported by recovering demand.
The RBI currently holds greater clarity on the near term compared to the medium term, citing global uncertainty and El-Nino conditions. Consequently, the central bank now views risks to both growth and inflation as evenly balanced.
Conditions for Future Rate Hikes
A scenario for policy rate hikes could emerge if strong growth persists through H2FY27 and into the next fiscal year, coupled with core inflation remaining above the RBI’s target. A cumulative 50 basis point increase in policy rates is expected under these conditions.
- Base Case for Rate Hike Cycle Start: December 2026 (if oil prices are high).
- Alternative for Rate Hike Cycle Start: April 2027 (if oil prices are low).