Inflation in India is unlikely to ease quickly, according to Axis Bank’s latest report, which highlights that both core and food price indices are expected to remain closely tied. Despite food and vegetable prices reaching cyclical highs, the report emphasizes that supply responses may lag behind the demand boost from income-transfer schemes, prolonging inflationary pressures.
“In India, we do not see inflation easing quickly: over the long term, core and food price indices move together. Though food relative to core, and vegetables relative to food, are both at cyclical highs, the supply response may lag the demand boost from income-transfer schemes,” said the report titled ” India Economic and Market Outlook 2025 “.
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India’s retail inflation surged to a 14-month high in October, driven by a jump in vegetable prices and dashing hopes of an interest rate cut by the central bank next month.
The annual retail inflation of 6.21% in October breached the central bank’s tolerance band for the first time in more than a year.
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Growth projection:
India’s economy is projected to grow at an above-consensus rate of 7% in FY26, driven by strong domestic factors, according to Axis Bank’s Chief Economist, Neelkanth Mishra. The growth is supported by a capital formation boost from a revived capex cycle, fiscal spending tailwinds from FY25, and monetary measures such as the CRR cut and expected macro-prudential easing that are set to revive credit growth.In the report, Mishra and co-authors Prateek Ancha, Tanay Dalal, Pulkit Kapoor, and Smriti Mehra also highlight global challenges, including heightened trade uncertainties, high interest rates, and risks of deflation and slowing growth in China. Despite these external risks, they remain confident that domestic drivers will propel India’s economy back to its 7% growth trend.
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Meanwhile, the Reserve Bank of India’s rate-setting panel has lowered India’s FY25 GDP growth forecast to 6.6 per cent from 7.2 per cent, former Governor Shaktikanta Das announced during this month’s MPC meeting.
Q3FY25 GDP growth forecast was reduced to 6.8% from 7.4%, Q4 growth target was lowered to 7.2% from 7.4%, and Q1FY26 was also revised to 6.9% from 7.3%.
India’s economic growth slumped more than expected to a seven-quarter low of 5.4% in the September quarter, dragged down by weak manufacturing and tepid demand amid high inflation and elevated interest rates.
