New Delhi, Dec 2 (IANS) India’s inflation is expected to average just below 2 per cent in FY26 and to remain below the Reserve Bank of India’s 4 per cent target in FY27, a report said on Tuesday.

As the October inflation came in at 0.25 per cent, the report from HSBC Global Investment Research said that only one‑third of the impact of GST tax cuts has shown up in inflation so far and there is room for further decline in inflation.

“We don’t think it’s only about short-term GST tax cuts and low food prices. We believe the fall in core inflation in this cycle is more long-lasting than past episodes, and that this will influence monetary policy,” the report said.

The research firm forecasted official GDP growth for FY26 at 7.7 per cent (up from 6.9 per cent earlier), with actual growth on the ground closer to 6.7 per cent.

Growth is likely to remain strong until December but could soften in the March quarter as the positive impact of GST cuts soften, fiscal spending tightens to meet deficit targets, and exports start to slow following the 50 per cent tariff, the report said.

“The Indian economy seems to have transitioned from hints of stagflation just a year ago, to a sweet spot now. The strong September quarter GDP print of 8.2 per cent benefitted from both a cyclical boost as well as statistical anomalies,” said Pranjul Bhandari Chief India Economist/Strategist, ASEAN Economist.

On the cyclical front, strong rains, monetary easing, fiscal spending, and GST cuts, all came together nicely, she added.

“We estimate that two deflator issues affecting manufacturing and services sectors respectively, may have understated the deflator by 1.2ppt and overstated real GDP growth,” the report said.

Meanwile, last week, Central government’s Chief Economic Advisor, V. Anantha Nageswaran, said that India’s GDP growth for the financial year 2025-26 is likely to be 7 per cent or more as official figures showed that the country’s Q2 growth surged to 8.2 per cent after recording a robust 7.8 per cent rise in Q1.

–IANS

aar/pk