BofA Upgrades India GDP Forecast to 6.8% for FY27 on Strong Consumption and Policy Support

Bank of America has turned more optimistic on India's economic growth trajectory, upgrading its GDP forecasts for both FY26 and FY27 based on improving macroeconomic fundamentals and supportive policy measures. Rahul Bajoria, Head of India and ASEAN Economics at BofA Global Research, announced the revised projections during an interaction with ET Now, highlighting broad-based improvements across key economic indicators.

Upgraded Growth Projections

BofA has raised its FY26 GDP growth forecast and upgraded its FY27 projection significantly. The key revision shows the investment bank's increased confidence in India's economic resilience.

Bajoria noted that the upgrade reflects sustained momentum seen across multiple high-frequency indicators following GST cuts. "Car sales, credit growth, fuel consumption and mobility indicators have all shown sequential improvement and are stronger than last year," he explained.

Policy Support Driving Confidence

The Reserve Bank of India's accommodative monetary policy stance has played a crucial role in supporting the growth outlook. Policy measures including the rate-cut cycle, liquidity infusions, and supportive fiscal stance have collectively created a conducive growth environment. However, Bajoria cautioned that growth in FY26 may still moderate slightly compared to the current fiscal year as the impact of tax cuts fades and trade-related headwinds emerge.

Government capital expenditure has also made a strong comeback after a relatively soft phase. "Even if private capex stays sluggish, public capex execution will continue to support construction activity, steel demand and land use," Bajoria said.

Consumption Leading Economic Expansion

BofA expects consumption to remain the primary driver of economic expansion, continuing its outperformance over investment growth into 2026. The recovery in nominal GDP growth is expected to support urban incomes and help sustain discretionary spending patterns.

Discretionary consumption has benefited significantly from recent policy measures:

• Income tax cuts providing direct relief to consumers
• GST reductions improving affordability
• Monetary easing supporting credit growth
• Low inflation environment enhancing purchasing power

"Housing, automobiles and travel have seen strong demand, supported by low inflation and improved affordability," Bajoria highlighted. Within consumption categories, automobiles remain a preferred segment, supported by affordability gains and upgrade cycles. Travel and experiential spending are also expected to perform well, particularly driven by Gen-Z consumers.

Monetary Policy Outlook

On the monetary policy front, Bajoria expects the RBI to deliver one more rate cut before pausing. With inflation remaining benign, the central bank has room for another 25 basis point reduction. "We expect one more cut in the February policy meeting, after which the RBI is likely to pause and assess incoming data," he said.

Any rise in inflation during 2026 is likely to be a normalisation rather than a structural inflationary surge, with global commodity prices remaining supportive of the overall price environment.

External Environment Remains Supportive

Despite ongoing geopolitical uncertainty, including trade tensions and developments in Venezuela, India remains relatively well positioned. Lower crude oil prices have provided significant external support, declining nearly $15.00 per barrel on average over the past year, helping cushion external shocks.

"As a house, we do not expect oil prices to move meaningfully above $60.00 a barrel. India's policy reforms and economic resilience should help mitigate global volatility," Bajoria noted.

Summing up the outlook, Bajoria said India is entering FY26 with improving growth fundamentals, supported by consumption, public capex, and accommodative policy, even as external uncertainties persist. "It will remain a period of heightened uncertainty, but India continues to demonstrate strong macro resilience," he concluded.