Mumbai, Jan 30 India can sustain “J‑curve” gains despite rupee weakness, if trade diversion becomes embedded in durable supply chains and is supported by logistics efficiencies, a report said on Friday.
The report from Emkay Global Financial Services further stressed restrained tariffs on capital goods and intermediaries as well as steady long‑term FDI to sustain the J-curve gains, adding that these factors will matter far more than tariffs over the medium term.
It projected a current account deficit of 1.3 per cent of GDP for FY27 and forecasted USD/INR trading in an 87–95 range, with the 10‑year government bond yield ending FY26 and FY27 at about 6.50 per cent and 6.25 per cent, respectively.
The firm forecasts FY27 Union Budget to continue the path of "calibrated fiscal consolidation, with the government shifting its fiscal anchor to debt-to-GDP."
The ‘Budget 2026’ will aim to strike a fine balance between fiscal prudence, growth support and reform continuity, while keeping India’s medium-term macro stability intact, it predicted.
The RBI will have be the bond demand-supply balancing factor for better monetary transmission, especially as FY27 will likely see third consecutive balance of payment deficit of $15 billion, the report said.
The report further predicted that open market operations worth around Rs 5 trillion is likely in FY27.
"While RBI’s sizable unsterilised FX intervention in recent months has drained liquidity, past build-up of a heavy net dollar short position" is weighing both on foreign‑exchange and fixed‑income markets, the report noted.
It estimated additional primary liquidity injections of about Rs 1.5 trillion over the rest of FY26.
The government is likely to target a gross fiscal deficit of 4.3 per cent of GDP, capital expenditure around 3 per cent of GDP and gross tax budgeted growth is likely to be 8.2 per cent, the report said.
“While the macro backdrop remains challenging, fiscal consolidation is likely to continue at a measured pace. The shift towards debt-to-GDP as the anchor signals the government’s intent to prioritise medium-term debt sustainability without compromising growth,” said Madhavi Arora, Chief Economist at Emkay Global Financial Services.
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