India’s economic growth likely remained resilient at 7.5% YoY in H1 FY27E
Chennai: India is estimated to grow by 7.2% in FY27 as the growth may moderate in the second half, finds UBS.
India’s economic growth likely remained resilient at 7.5% YoY in H1 FY27E. UBS estimates the momentum to moderate in H2 with a gradual fading of the tax impulse, tighter global financial conditions, oil price volatility and the drag from a weak monsoon are likely weigh on activity.
Rural consumption is likely to moderate as higher inflation and lower crop yields weigh on real incomes, although continued social welfare spending amid a busy state election cycle could cushion the downside. It expects urban consumption to remain relatively supportive on robust credit growth, while net exports are likely to remain a drag.
Rural consumption is likely to moderate as higher inflation and lower crop yields weigh on real incomes, although continued social welfare spending amid a busy state election cycle could cushion the downside. It expects urban consumption to remain relatively supportive on robust credit growth, while net exports are likely to remain a drag.
It expects India to sustain real GDP growth of 7% during FY29-31E. Reform momentum has broadened in recent years, consisting of GST rationalisation, labour codes, deregulation, infrastructure, state-level land reforms and more global integration through new trade agreements. Together with policies to boost manufacturing, these reforms should raise investment, productivity and competitiveness.
“The lagged impact of a super El Niño on agricultural output and rural incomes could remain a drag. We expect India's real GDP growth to settle toward trend at 7.0% YoY in FY28E before recovering to 7.2% in FY29E. Risks remain skewed to the downside: if Brent crude remains around US$100/bbl in FY28E and global yields rise, we flag a 40bp downside risk to our FY28 real GDP growth estimate, to 6.6%YoY”.
However, sustaining 7% growth will require deeper structural reforms, particularly in land and capital markets, alongside higher R&D spend and human capital investment. While AI adoption could provide a productivity boost, it also increases the urgency of reskilling and creating quality jobs for India’s growing workforce.
As the incremental impetus from public capex moderates and the real estate cycle matures, a revival in private corporate investment should support the next phase of the capex cycle. Healthier corporate balance sheets, improving demand visibility and expanding investment opportunities in 'new-age' sectors, including data centres, semiconductors, electronics, defence, advanced manufacturing and renewable energy transition, are conducive for a recovery in corporate capex. The household consumption growth may soften marginally in FY28E.
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