India to grow at 6.5% in FY26: EY Report

EY Economy Watch projects India's GDP growth at 6.5%, emphasising the need for fiscal policy realignment to support growth.

The Indian economy is likely to grow at 6.5% in the fiscal year starting April 1, EY Economy Watch said, emphasising that a well-calibrated fiscal strategy that supports human capital development while maintaining fiscal prudence could significantly enhance long-term growth prospects.

The March edition of EY Economy Watch projects India’s real GDP growth at 6.4% in FY25 (April 2024 to March 2025 fiscal year). For the next, it projects 6.5% growth, highlighting the need to realign fiscal policy to support the country’s journey toward Viksit Bharat.

According to revised national accounts data released by NSO last month, real GDP growth rates for FY23 to FY25 are now estimated at 7.6%, 9.2% and 6.5%.

With respect to quarterly growth rates for FY25, the third quarter growth is estimated at 6.2% implying a required growth of 7.6% in the fourth quarter to deliver an annual GDP growth of 6.5% estimated by NSO.

“A 7.6% growth in the last quarter will require a 9.9% growth in private final consumption expenditure. Such a high growth has not been experienced in recent years,” the report said. “An alternative to this is to increase investment expenditure, where the government’s capital expenditure growth plays a critical role.”

It said the fiscal deficit of the government as per the revised estimates may be affected by any subsequent supplementary demand for grants. The higher level of nominal GDP may provide some cushion for absorbing some of these supplementary increases when fiscal deficit is measured relative to GDP.

“With a rising population and evolving economic structure, additional investments in education and healthcare may be essential to sustaining long-term growth and improving human capital outcomes,” it said.