India’s economy set for 7-7.2% growth in FY27 despite global headwinds: EY
India's economy is poised for significant growth in FY27, with forecasts suggesting an expansion between 7 and 7.2 percent. This anticipated surge in economic activity will be driven by strong domestic demand and government investment initiatives. Notably, manufacturing is showing an impressive rebound, although inflation poses a considerable threat by affecting wholesale prices. Meanwhile,…
India is on track for 7-7.2% real GDP growth in the fiscal year 2027, according to consulting firm EY's recent report. This growth is driven by robust domestic demand and government investment in capital projects. Despite global challenges such as geopolitical uncertainty, high oil prices, and a weaker international trade environment, India's growth prospects are relatively strong.
The industrial sector is performing well, with the Index of Industrial Production expanding 7.3% in June 2026, the fastest rate in 23 months. Manufacturing contributed 7.8% to this growth, with key sectors like electrical equipment, motor vehicles, textiles, and food products leading the way.
However, the pace of expansion may be moderating, as manufacturing and services Purchasing Managers' Index (PMI) values fell in July. Meanwhile, government spending on capital projects is rebounding, with capital expenditure growth accelerating to 23.7% in the first quarter of FY27, up from a 23.3% contraction in the previous quarter.
Despite this, inflation remains a significant risk. Consumer price inflation is at 4.4%, while wholesale price inflation stands at 9.8%, driven by increases in mineral oils, food articles, metals, chemicals, and fuels.
The government's fiscal deficit is targeting 18.2% of the annual budget, but EY suggests that higher inflation could lift nominal GDP growth above the government's budget assumption of 10.04%. This could help the government maintain its capital expenditure push while keeping the fiscal deficit target in check. The external sector faces headwinds, with higher energy costs and weaker global demand potentially impacting exports.
India's current account deficit could widen to 1.9% of GDP in FY27, according to OECD projections. However, EY believes India can improve its external position by reducing import dependence, boosting domestic value addition, and promoting export and domestic manufacturing.
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