EY Forecasts 6.5% Growth for India’s Economy in FY26

India’s economy is projected to grow by 6.5% in the current financial year, buoyed by declining crude oil prices and stable inflation rates. This optimistic outlook comes despite rising global trade tensions and a slowdown in the international economy. According to EY’s latest Economy Watch report, several global factors are influencing India’s growth trajectory, including reduced exports and a surplus in global production capacities.

Key Factors Influencing Growth

The EY report identifies four primary factors that are shaping India’s economic outlook: a decline in exports, a global economic slowdown, falling crude oil prices, and an oversupply in global production. D K Srivastava, chief policy advisor at EY India, emphasized that with appropriate fiscal and monetary policies, India could sustain a real GDP growth rate of around 6.5% in FY26 and maintain consumer price index (CPI) inflation below 4%. The significant drop in crude oil prices, which fell from $75 per barrel in early April to around $65 by mid-month, is expected to alleviate inflationary pressures and support domestic economic growth.

Challenges in Exports

While the decline in global tariffs and weakening demand pose challenges for exports, the report suggests that the overall impact on GDP may be limited. This is because net exports have not significantly contributed to India’s recent economic growth. To address these challenges, the report recommends that India consider implementing anti-dumping measures to mitigate the risks associated with oversupply from countries with excess production. Additionally, it suggests revising crude oil sourcing strategies, such as increasing imports from the United States, which could enhance the trade balance and lessen the effects of recent tariff increases.

Strategic Economic Partnerships

The report also highlights the potential advantages of establishing a comprehensive bilateral trade agreement with the United States, anticipated by September to October 2025. It encourages India to strengthen its economic relationships with the UK, EU, and other key regional players. Srivastava noted that India’s response to global disruptions should be strategic and multifaceted. He believes that India has the potential to emerge stronger if it continues to manage its macroeconomic fundamentals effectively through growth-oriented fiscal policies and an accommodating monetary stance.

Long-Term Growth Prospects

Looking ahead, EY underscores the importance of ongoing reforms in land and labor laws, increased investment in education and skills, and a focus on emerging technologies such as artificial intelligence. Expanding the Production-Linked Incentive (PLI) scheme is also viewed as a crucial lever for growth. The projected growth rate of 6.5% for FY26 aligns with estimates from various global agencies, including the IMF and World Bank, which forecast growth rates of 6.2% and 6.3%, respectively. The Reserve Bank of India and S&P Global Ratings also project a growth rate of 6.5%, while the OECD and Fitch estimate slightly lower at 6.4%. These projections emerge amid heightened global trade uncertainties following the announcement of reciprocal tariffs by the U.S. government.

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