Mumbai – India must now shift its focus beyond monetary and fiscal support and prioritize structural reforms to achieve its “aspirational” growth targets, according to an HSBC Global Investment Research report released on Wednesday.
While India has already made progress on some trade reforms—such as cutting tariffs on intermediate goods, signing more trade agreements, encouraging foreign direct investment (FDI), and improving the ease of doing business across states—the report emphasized that these efforts need to go deeper to create meaningful impact.
“If upcoming growth data weakens, the Reserve Bank of India (RBI) may revise its FY26 growth forecast downward and could even deliver a rate cut,” the report stated. HSBC is maintaining its projection of a 25 basis point rate cut in the fourth quarter of 2025.
However, the report cautioned that there’s limited room left for monetary policy to stimulate further growth. “The RBI has already provided substantial support, and there’s only so much more it can do,” it noted.
On the fiscal front, the report acknowledged a recent uptick in government capital expenditure but also flagged limited space for additional fiscal stimulus going forward.
Earlier, the RBI’s Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged at 5.5%, which HSBC said was “in line with expectations,” especially after the significant easing already delivered this year. In the first half of 2025, the RBI has:
- Cut the repo rate by 100 basis points,
- Reduced the cash reserve ratio (CRR) by 100 basis points across four tranches (Sept–Nov),
- Injected ₹9.5 lakh crore of durable liquidity through open market operations (OMOs), CRR cuts, buy-sell swaps, and variable rate repos (VRRs).
The RBI projected GDP growth for Q1 FY27 at 6.6%, slightly above the unchanged FY26 forecast of 6.5%, noting that while “growth remains robust, it is still below aspiration.”
In terms of consumption trends, the RBI observed that urban consumption remains subdued, whereas rural demand and public capital spending are holding strong.
Despite lowering its FY26 inflation forecast to 3.1% (from 3.7%), the RBI expects inflation to rise to 4.9% in Q1 FY27, mainly due to base effects. The report highlighted that although falling vegetable prices are currently helping to ease inflation, core inflation is beginning to rise.
“This mix of higher forward-looking growth and inflation estimates suggests that the threshold for further rate cuts is now higher,” HSBC noted.
The transmission of recent rate cuts into lending and deposit rates has started off well, but RBI Governor Sanjay Malhotra cautioned that the full effect on credit demand may take more time.
“In our view, this policy stance acts more as a placeholder than a signal of tightening,” the report concluded.
With inputs from IANS