‘India growth momentum is broadening’: Rahul Bajoria 

Edited excerpts:

Q. What is your assessment of the new GDP series and what issues remain?

A. The new GDP methodology is much more aligned with global SNA guidelines. It addresses several criticisms of the previous series, including double deflation, better measurement of services and incorporation of new information sets such as GST data. From a representative-sample perspective, the new series is far more robust.

High-frequency data have also consistently improved over the past 12-18 months, particularly in the last six months, showing a broadening of growth momentum that is reflected in GDP data. Our Q1 growth forecast was 7.5%; the actual figure was 7.8%, broadly in line with our expectations. We were therefore surprised by the debate, but not by the outcome.

Q. What is your assessment of GDP growth in July-September?

A. Growth momentum is broadening across sectors. There are headwinds in agriculture, with the early estimate of the Kharif harvest slightly below last year’s level, possibly reflecting poor rains. But bank credit and deposit growth, car sales, industrial production, core-sector activity and trade numbers indicate that momentum has either held up or strengthened.

We expect Q2 FY27 GDP growth at 7-7.5%. Whether it is 7.8%, 7.3% or 7.2% is less important; the early indicators point to another very strong quarter.

Q. What is your outlook for the second half of FY27?

A. We expect some moderation, but growth should remain somewhat stronger than the RBI’s and the government’s early forecasts. The moderation will partly reflect weaker agriculture. However, manufacturing, investment and services should remain reasonably resilient. The credit cycle and investment demand have held up over the past six months, and we do not expect that to change materially.

So, we see a slowdown, but not a major one. Base effects will also play a role, given the strong recovery following the GST tax cuts last year.

Q. What is your inflation outlook?

A. We expect inflation to rise, but not faster than the RBI’s trajectory. While we are more optimistic than the RBI on growth, our inflation outlook is broadly in line with its projections. Core inflation excluding metals has been rising but remains below 4%; we expect it to move towards 4% over the next six months.

If growth remains strong, however, core inflation could rise faster than our or the RBI’s baseline over the next 6-12 months. We forecast FY27 CPI inflation at 5%, with core inflation at 4-4.5%.

Q. Why do you expect 100 basis points of rate hikes, including 50 basis points beyond December?

A. We expect inflation to move sideways between October-December and January-March. More importantly, our conviction comes from the strength of growth. We do not expect growth to fall below 7% in any of the next four quarters.

If inflation remains broadly on the RBI’s trajectory, both growth and inflation would still be above levels that typically warrant very accommodative policy. Core inflation would therefore face greater upside risks. A global bias towards higher rates, challenging capital inflows, elevated commodity prices and limited improvement in supply conditions could reinforce a longer rate-hiking cycle.

The key comfort is the stability of domestic growth, which gives the RBI room to recalibrate its policy stance and raise rates.

Q. When do you expect the rate hikes?

A. We expect 25-basis-point hikes each in October and December, followed by one hike each in Q1 and Q2 of the next calendar year. So, we expect a hike in February and another in either April or June. By June next year, we expect the repo rate to be around 6.25%.