Why India Will Remain The Fastest Growing Economy In FY26?

After underlying portfolios largely struggled in CY2025, Axis Bank's 'Investment Perspectives' report noted that "monetary easing and regulatory reforms" will support above-trend growth of 7.5% in FY27.

According to IMF expectations, India is projected to record a 7.5% growth in FY26, and 7.5% in FY27. Meanwhile, the average CPI inflation is expected to stand at 1.8%, and 4.0% for FY27.  Let's look at the factors that favour India's growth story in FY27.

Also Read: Dalal Street Under Pressure: What’s Driving the 2026 Market Correction?

Growth Headwinds That'll Ensure India's 7.5% Growth In FY27

• Growth headwinds from fiscal and monetary tightening in FY25 have eased, driving revival in FY26.

Meanwhile, trend growth is estimated at 7%, supported by TFP gains and a rebound in capital formation led by manufacturing, utilities, and real estate. FY27 consensus appears conservative given these structural and cyclical tailwinds.

• Global growth is projected to soften slightly, with IMF estimating 3.1% YoY for CY25E—about 30– 40bps below pre-Covid levels. Growth mix will shift with slower expansion in India, China, and Japan, and steady performance in the US and EU. AI-driven capex has added nearly US$100 bn annually to US growth.

• India will remain the fastest-growing major economy as policy tightening reverses. Fiscal drag has eased, monetary policy is supportive, and domestic cyclical revival matters more for demand than external factors.

• Actual growth can exceed this trend through fiscal and monetary measures without triggering inflation as long as economic slack persists. Indicators suggest significant slack, enabling above-trend growth supported by reduced fiscal drag, monetary easing, and macro prudential measures.