India's GDP to grow at 7-7.2% in FY27, says EY
What's the story
India's real gross domestic product (GDP) growth is projected to stay strong at 7-7.2% in the financial year 2026-27 (FY27), according to a recent report by Ernst & Young (EY). The growth will be backed by strong domestic demand and continued government focus on capital expenditure, the report said. Nominal GDP growth could touch 12.5%-13%, it added.
Economic indicators
Industrial activity shows positive momentum
The optimistic outlook comes on the back of an improvement in industrial activity.
India's Index of Industrial Production (IIP) growth hit a 23-month high of 7.3% in June 2026.
This pushed average industrial growth in Q1 FY27 to 5.7%, the highest in eight quarters.
Manufacturing output also rose by 7.8%, with electrical equipment, motor vehicles, textiles, and food products being major contributors to this growth.
Fiscal impact
Government capex growth rebounds
On the fiscal side, government capital expenditure growth bounced back to 23.7% in Q1 FY27 after a contraction in Q4 FY26.
The fiscal deficit was contained at 18.2% of the annual budget target during this period.
However, inflation remains a key risk with consumer price inflation at 4.4% and wholesale price inflation at an elevated 9.8%.
Global challenges
External risks and potential solutions
EY also highlighted external risks such as high energy costs and weak global demand impacting exports.
India's current account deficit may widen to 1.9% of GDP in FY27, according to OECD projections.
However, there is potential to strengthen India's external position through import substitution and domestic value addition.
A targeted strategy could replace around $189 billion worth of imports by focusing on 1,272 products identified for import substitution.