India GDP growth forecast FY27: EY projects 7-7.2% amid capex push
Synopsis
EY projects India's real GDP growth will hold at 7–7.2% in FY27, even as global headwinds mount. The standout signal: government capex swung from a 23.3% contraction to 23.7% growth in a single quarter — a fiscal pivot that could be the decisive factor in whether India sustains its growth lead among major economies.
Key Takeaways
EY projects India's real GDP growth at 7–7.2 per cent in FY27 , with nominal GDP at 12.5–13 per cent .
IIP hit a 23-month high of 7.3 per cent in June 2026 ; average Q1 FY27 industrial growth reached 5.7 per cent , the highest in eight quarters .
Manufacturing output grew 7.8 per cent in June, led by electrical equipment, motor vehicles, textiles, and food products.
Gross bank credit growth accelerated to a 25-month high of 18.6 per cent in June 2026 .
Government capex rebounded to 23.7 per cent growth in Q1 FY27, reversing a 23.3 per cent contraction in Q4 FY26.
Fiscal deficit stood at 18.2 per cent of the annual budget target, indicating expenditure discipline.
India's real GDP growth is projected to hold steady at 7–7.2 per cent in FY27, backed by resilient domestic demand and the government's sustained capital expenditure drive, according to a report by EY. Nominal GDP growth is expected to reach 12.5–13 per cent over the same period, the report noted.
Growth Outlook Remains Resilient
EY assessed that India's macroeconomic fundamentals remain relatively robust despite headwinds including geopolitical uncertainties, elevated crude oil prices, and a subdued global trade environment. Strong domestic economic activity and continued public investment are expected to underpin expansion through the fiscal year.
Notably, the Index of Industrial Production (IIP) accelerated to a 23-month high of 7.3 per cent in June 2026, according to EY. Average industrial growth in the first quarter of FY27 climbed to 5.7 per cent — the highest in eight quarters.
Manufacturing Leads Industrial Improvement
Manufacturing output rose 7.8 per cent in June 2026, emerging as a primary driver of the industrial uptick. Segments including electrical equipment, motor vehicles, textiles, and food products were among the stronger performers during the period.
However, some high-frequency indicators point to a moderation in momentum. The Manufacturing Purchasing Managers' Index (PMI) eased to 53.5 in July from 54.2 in June, while the Services PMI fell more sharply to 53.3 from 57.4. Both indices nonetheless remained above the 50-point expansion threshold, signalling continued — if slower — growth in economic activity.
Credit Growth and Capital Expenditure Provide Support
Credit conditions have remained accommodative. EY reported that gross bank credit growth accelerated to a 25-month high of 18.6 per cent in June 2026, reflecting continued financing availability for businesses across segments.
Government capital expenditure, a key pillar of the growth strategy, rebounded sharply — rising 23.7 per cent in the first quarter of FY27 after contracting 23.3 per cent in the fourth quarter of FY26. This swing represents one of the more significant fiscal pivots of the current year.
Fiscal Deficit Stays Contained
The fiscal deficit remained within bounds at 18.2 per cent of the annual budget target, suggesting the government has maintained expenditure discipline alongside its capex push. EY indicated that the renewed momentum in public investment should help sustain domestic demand and support the real GDP growth trajectory through FY27.
With global trade conditions uncertain and commodity prices elevated, the trajectory of government capex and domestic consumption will remain the critical variables to watch in the quarters ahead.
Point of View
And while it flatters the headline number, it also reflects how lumpy government spending has become. PMI moderation in both manufacturing and services in July is an early warning that the momentum may not sustain without private investment picking up the baton. Credit growth at a 25-month high is a positive signal, but if it is concentrated in retail lending rather than productive capex, it adds vulnerability rather than resilience. The real test for FY27 is whether the government's fiscal push crowds in private investment or merely substitutes for it.
NationPress
30 Aug 2026
Frequently Asked Questions
What is India's GDP growth forecast for FY27?
EY projects India's real GDP growth at 7–7.2 per cent in FY27, supported by domestic demand and government capital expenditure. Nominal GDP growth is expected to reach 12.5–13 per cent over the same period.
Why is India's growth outlook considered resilient despite global headwinds?
According to EY, strong domestic economic activity and sustained public investment are expected to offset risks from geopolitical uncertainties, elevated crude oil prices, and a weaker global trade environment. The government's capex push and robust bank credit growth are seen as key buffers.
What do the latest IIP and PMI figures indicate about India's economy?
IIP growth hit a 23-month high of 7.3 per cent in June 2026, and Q1 FY27 average industrial growth reached 5.7 per cent — the highest in eight quarters. However, Manufacturing PMI eased to 53.5 and Services PMI fell to 53.3 in July, suggesting some moderation, though both remain above the 50-point expansion mark.
How has government capital expenditure performed in FY27?
Government capex grew 23.7 per cent in the first quarter of FY27, sharply reversing a 23.3 per cent contraction in Q4 FY26. EY noted this renewed momentum is expected to sustain domestic demand and support GDP growth.
What is the current state of India's fiscal deficit?
India's fiscal deficit stood at 18.2 per cent of the annual budget target as of the latest data, indicating that the government has maintained expenditure discipline even while ramping up capital spending.
