EY has revised India's GDP growth forecast for fiscal year 2026 (FY26) upwards to 6.7% from the previous estimate of 6.5%. This upward revision is primarily attributed to the anticipated positive impact of Goods and Services Tax (GST) 2.0 reforms. These reforms are expected to stimulate domestic demand and provide relief to household budgets through the consolidation of tax rates.
The "GST 2.0" refers to the next phase of GST reforms aimed at simplifying the tax structure, improving compliance, and enhancing revenue efficiency. These changes are likely to reduce the overall tax burden on certain goods and services, thereby increasing disposable income for consumers and boosting consumption.
Despite a challenging global economic environment, EY believes that India is well-positioned to sustain its growth momentum through strategic investments and trade diversification. The EY report suggests that with proactive macroeconomic management and external sector realignment, India can maintain a real GDP growth at about 6.5 per cent in FY26 as also in the medium term, while maintaining a CPI inflation below 4 per cent.
Other organizations have also provided growth forecasts for India's FY26 GDP. The International Monetary Fund (IMF) and the World Bank project growth to be 6.2 per cent and 6.3 per cent, respectively. While the RBI and S&P Global Ratings project FY26 growth at 6.5 per cent, the OECD and Fitch Ratings forecast GDP expansion at 6.4 per cent.
Earlier in the year, the EY Economy Watch report identified key factors influencing India's growth, including reduced exports, global slowdown, falling crude oil prices, and the impact of global excess production capacities. The report emphasized the importance of accelerating reforms in land and labor, investing in education, skilling, and emerging technologies like AI and GenAI, and expanding Production Linked Incentive (PLI) coverage. It also recommended that India deepen trade ties with the UK, EU, and select regional partners.
EY India suggests that over the next two decades, India may need to gradually increase its general government expenditure on education and health to levels comparable to high-income countries. Education spending may need to rise to 6.5% of GDP by FY2048, up from the current 4.6%, to support India's young population and workforce requirements.
