Bank of Baroda on Monday raised its growth forecast for financial year 2026-27 (FY27) to 7-7.2 per cent from 6.6-6.8 per cent estimated in July on the back of robust first-quarter growth, even as a sub-normal monsoon and a fresh spike in oil prices tilt the risks to inflation and the fiscal deficit to the upside.
Q1FY27 GDP grew 7.8 per cent, up from 6.9 per cent a year earlier, with gross value added (GVA) rising 8.2 per cent. Private consumption expanded 9.9 per cent and investment 20 per cent. “This basically signals that we have strong domestic fundamentals which are driving growth despite the volatile global situation,” said Bank of Baroda economist Sonal Badhan.
The headline good-news story was the RBI’s FCNR(B) window, which drew far more than anyone anticipated and was shut a month early, on August 31. “None of us really expected what we have seen today of 130-plus billion dollars,” said Madan Sabnavis, chief economist at Bank of Baroda. With total capital inflows near $136 billion, the team now expects a balance-of-payments surplus of $65-75 billion and sees the external position as “very healthy”, though it kept its current account deficit forecast at 1-1.25 per cent.
On inflation, the bank held its CPI projection at roughly 5-5.2 per cent, with Badhan warning that “inflation is facing dual threat and upside risk” — from a weak monsoon squeezing farm output and from oil, now back near $98 a barrel after renewed West Asia tensions. Sabnavis added that companies have yet to pass through higher input costs, so “core inflation is something which will continue to increase.”
The team also flagged a wider fiscal gap. Against the budgeted 4.3 per cent of GDP, the expected number is around 4.5-4.6 per cent, citing a ballooning fertiliser subsidy bill and weaker dividends from oil marketing companies.
The sharpest shift was on rates. As recently as July, the bank saw the RBI staying on hold until at least October. It now expects that hike — 25 basis points (bps) — to materialise, and puts the repo rate at 5.5-5.75 per cent through the cycle. “Inflation is a concern,” Bank of Baroda economist Dipanwita Mazumdar noted, flagging both monsoon risks and the Fed’s uncertain path.
