EY sees India GDP growing 7-7.2% in FY27 despite risks

EY projects India's real GDP growth at 7-7.2% in FY27, backed by manufacturing gains and capex, even as inflation and import costs pose risks.

Consulting firm EY has forecast that India's real gross domestic product will expand by 7-7.2% in the 2026-27 financial year, citing steady household spending and continued public capital spending as the main supports for the economy.

In a report released this week, EY said nominal GDP is likely to grow between 12.5% and 13% over the same period. The firm noted that this outlook holds even as India contends with geopolitical tension, elevated crude oil prices and a softer global trade climate.

Factories lead the upswing

Industrial output has strengthened noticeably. The Index of Industrial Production climbed 7.3% in June 2026, the sharpest monthly rise in 23 months. Across the April-June quarter, industrial growth averaged 5.7%, the best showing in eight quarters.

Manufacturing did much of the heavy lifting, with output up 7.8% during the period. EY pointed to electrical equipment, motor vehicles, textiles and food products as the segments that performed best.

Survey data, however, points to a slower rate of expansion ahead. The manufacturing Purchasing Managers' Index eased to 53.5 in July from 54.2 in June, while the services PMI slid more sharply, to 53.3 from 57.4. Both gauges stayed above the 50-mark that separates growth from contraction, meaning activity in both sectors kept expanding, just at a gentler clip.

Lending activity, meanwhile, picked up. Gross bank credit growth quickened to 18.6% in June, its fastest pace in 25 months, according to EY.

Government spending rebounds

Public capital expenditure has also turned a corner. After contracting 23.3% in the January-March quarter of FY26, capex growth rebounded to 23.7% in the first quarter of FY27. The fiscal deficit stood at 18.2% of the full-year budget target for that quarter.

EY said this renewed spending push should help keep demand steady and support the broader growth trajectory for the year.

Price pressures remain a concern. Retail inflation was recorded at 4.4% in July, while wholesale price inflation ran much hotter, at 9.8%, driven by mineral oils, food items, metals, chemicals and fuel. EY said this gap could push nominal GDP growth past the government's own budget assumption of 10.04%, which in turn could boost tax and revenue collections and give the government room to keep spending on capital projects without breaching its deficit goal.

Trade gap seen widening

The report flagged the external sector as the weaker link in the outlook. Costlier energy imports and softer demand from overseas markets could dent exports, and EY cited OECD projections showing India's current account deficit widening to 1.9% of GDP in FY27.

To offset this, EY suggested India cut its reliance on imports and build up domestic value addition. It estimated that a focused effort spanning 1,272 products could displace roughly $189 billion worth of imports.

The firm added that stepping up export promotion alongside domestic manufacturing could ease supply-side pressures over the medium term, helping shore up the country's external position even as global trade conditions stay uncertain.

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