India is experiencing a rare alignment of strong economic growth and subdued inflation, creating what economists describe as a 'goldilocks' scenario. According to Nomura's Aurodeep Nandi, as reported by The Economic Times, growth has surprised on the upside with approximately 8% in the first half of the year, while inflation has been pretty low with food inflation coming off significantly. The economist notes that core inflation, which is ex-food and fuel, has been low for now a couple of years, providing a stable macroeconomic backdrop.
Several factors are supporting India's economic resilience, as outlined by Nandi in his conversation with ET Now. Headwinds that weighed on the economy through 2024 and 2025 are now tapering off with trade disruptions easing and wage growth expected to improve. The policy environment has been particularly supportive, with 2025 being a year where there has been a lot of policy easing on the regulatory side from RBI's perspective. The budget has basically been pro-growth as opposed to pro-fiscal consolidation, creating favorable conditions for sustained expansion.
The inflation outlook remains constructive, provided monsoon conditions remain favorable. According to Nandi's analysis reported by The Economic Times, we do not see major inflationary risks if we have decent monsoons and given that the core drivers behind lower underlying inflation still remain pretty much in place. Nomura expects GDP growth at 7.5% in FY26 and 7.1% in FY27, with inflation hovering around 4%, maintaining the goldilocks scenario. The economist notes that underlying inflation seems anchored at around 4% as of current assessments.
Regarding monetary policy, Nandi maintains a cautious stance while acknowledging the RBI's flexibility. As reported by The Economic Times, the baseline view is no more cuts, but he acknowledges the counterargument that achieving seven-percent-ish growth with low inflation might warrant further rate reductions. The RBI certainly has the bullets for a rate cut with nothing constraining the central bank's ability to act. Nomura's house forecast is rupee at around 90 level by the end of the calendar year, though volatility remains a factor with trade tensions and capital flows being key determinants.
Several structural factors are contributing to India's economic resilience, as highlighted by Nandi's analysis. According to The Economic Times report, one of the reasons why real growth has been high in the last two quarters has been that the GDP deflator has also been low. Capital expenditure, particularly at the state level, remains supportive with technical factors also playing a role. The GST cut plus festive demand quarter means that a lot of consumption-related indicators have picked up, contributing to expectations of 7.7% GDP growth in Q3 compared with 8.2% in the previous quarter.