EY Forecasts 7-7.2% Growth for India’s Economy in FY27 Amid Global Challenges
India’s economy is projected to grow between 7% and 7.2% in FY27, driven by robust domestic demand and increased government spending on capital projects, according to a recent report by EY. The firm also estimates nominal GDP growth at 12.5% to 13%, despite challenges posed by geopolitical uncertainties, high crude oil prices, and a weaker global trade environment.
Industrial Activity Picks Up Pace
The industrial sector’s performance has bolstered the growth outlook. India’s Index of Industrial Production (IIP) rose by 7.3% in June 2026, marking its fastest growth in 23 months. The average industrial growth during the first quarter of FY27 was 5.7%, the strongest in two years. Manufacturing played a significant role, with output increasing by 7.8%, particularly in segments such as electrical equipment, motor vehicles, textiles, and food products.
PMIs Signal Moderation
However, there are indications that the pace of expansion may be slowing. The Manufacturing Purchasing Managers’ Index (PMI) decreased to 53.5 in July from 54.2 in June, while the Services PMI fell to 53.3 from 57.4. Both indices remain above 50, suggesting continued expansion in these sectors. Additionally, gross bank credit growth accelerated to 18.6% in June, the highest rate in 25 months.
Capex Push Supports Growth
Government spending is a crucial factor in the economic outlook. Capital expenditure growth surged to 23.7% in the first quarter of FY27, recovering from a 23.3% contraction in the previous quarter. The fiscal deficit stood at 18.2% of the annual budget target during this period. EY noted that the renewed focus on capital expenditure should help sustain demand and bolster real GDP growth.
Inflation Remains a Key Risk
Inflation continues to pose a significant risk. Consumer price inflation was recorded at 4.4% in July, while wholesale price inflation reached 9.8%, driven by increases in mineral oils, food articles, metals, chemicals, and fuels. Higher wholesale price inflation could push nominal GDP growth above the government’s budget assumption of 10.04%, potentially supporting revenue receipts and enabling continued capital expenditure while maintaining fiscal deficit targets.
External Sector Faces Headwinds
The external sector presents additional challenges. Rising energy costs and weaker global demand may negatively impact exports, with India’s current account deficit projected to widen to 1.9% of GDP in FY27, according to OECD estimates. EY suggested that India could enhance its external position by reducing import dependence and increasing domestic value addition, with a targeted approach covering 1,272 products potentially replacing around $189 billion worth of imports.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
