In a positive revision for India’s economic outlook, EY has upgraded its real GDP growth projection for FY26 (2025-26) to 6.7%, up from the earlier estimate of 6.5%. This upward adjustment, detailed in EY India’s September 2025 Economy Watch report released on September 29, credits recent GST 2.0 reforms and anticipated monetary easing for stimulating domestic demand, even as global uncertainties like US tariffs loom large. The Q1 FY26 growth of 7.8% further underpins this resilience, outpacing the RBI’s 6.5% expectation and signaling strong momentum despite external drags on exports.
For investors, policymakers, and economists, EY’s forecast reaffirms India’s status as the world’s fastest-growing major economy, projecting sustained 6.5-7% growth through the decade. With fiscal deficit targets at 4.4% and capex hikes, the revision highlights policy levers offsetting trade headwinds. Let’s explore the drivers, risks, and long-term vision.
Why the Upgrade? GST 2.0 and Domestic Stimulus Take Center Stage
EY attributes the 20 basis points bump primarily to GST reforms, which consolidate tax slabs and reduce rates on essentials, easing household budgets and spurring consumption. Expected monetary easing—potentially 50-75 bps rate cuts by RBI—will further fuel credit growth, while capex investments (up 20% in FY26 budget) bolster infrastructure.
Key factors boosting the outlook:
| Driver | Impact on FY26 Growth | Details |
|---|---|---|
| GST 2.0 Reforms | +0.2-0.3% | Lower post-tax prices lift disposable incomes; offsets revenue shortfalls via higher volumes. |
| Q1 FY26 Momentum | Baseline Strength | 7.8% expansion in April-June, driven by 7.4% private consumption and 7.5% investment. |
| Monetary Easing | +0.1-0.2% | RBI cuts to support credit; inflation cooling to 4-4.5%. |
| Capex Push | Infrastructure Lift | 20% hike to Rs 11.11 lakh crore; sustains 10.5% construction growth. |
Despite these tailwinds, EY tempers enthusiasm: US tariffs could shave 0.1% off growth, but diversification to non-China markets (e.g., Vietnam, Mexico) offers buffers.
Risks and Headwinds: Global Trade and Export Vulnerabilities
While domestic demand shines, external pressures could cap upside. EY flags constrained goods/services exports amid US tariff threats (up to 50% on Indian items) and supply chain shifts. Merchandise exports grew 7.3% in July 2025, but crude imports (up 8.6%) and WPI deflation (-0.6%) signal volatility.
Downside scenarios:
- Tariff Impact: 0.1% GDP drag if unmitigated; services exports must ramp 15-20% via AI investments.
- Inflation/Debt: CPI at 5-6% vs. global 2-3%; debt-to-GDP falls to 75.8% by 2030, but peers’ rising burdens aid India’s edge.
- Global Slowdown: IMF’s 3.2% world growth steady, but trade disruptions loom.
EY stresses trade realignment: Boost services to the US while curbing non-essential imports.
Long-Term Vision: India as $30-40 Trillion Powerhouse by 2050
EY’s forecast aligns with ambitious projections: India could hit $20.7 trillion (PPP) by 2030 and $34.2 trillion by 2038, overtaking the US as the second-largest economy. By 2050, $30-40 trillion is feasible with 6.5% average growth, low debt (75.8% by 2030), and demographics (median age 28.8 in 2025). Reforms like GST 2.0 are pivotal, alongside education/health spends rising to 6% and 3% of GDP by mid-2030s.
Compared to OECD’s 6.7% for 2025 (up from 6.3%), EY’s view is optimistic yet grounded.
Conclusion: EY’s 6.7% Call – Resilience in a Turbulent World
EY’s upgrade to 6.7% GDP growth for FY26 paints a resilient picture for India, powered by GST reforms and domestic vigor despite tariff storms. As Q2 data emerges, strategic trade shifts will be key to sustaining this trajectory toward a $30+ trillion future. For now, it’s a vote of confidence in policy levers steering the world’s fastest-growing major economy. ET
