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India’s economy is expected to maintain a strong growth trajectory in FY27, with real GDP growth projected at 7% to 7.2%, according to the latest report from EY. The outlook remains positive despite geopolitical uncertainty, elevated crude oil prices and a weaker global trade environment.
EY expects nominal GDP growth of 12.5% to 13% during the financial year. Strong domestic demand and continued government spending on infrastructure and other capital projects are expected to remain the main pillars of economic activity.
Recent economic indicators have added support to the growth outlook. India's Index of Industrial Production (IIP) rose 7.3% in June 2026, its fastest pace in 23 months. Industrial production growth averaged 5.7% during the first quarter of FY27, marking its strongest quarterly performance in eight quarters.
Manufacturing has been an important contributor. Output in the sector increased 7.8%, with electrical equipment, motor vehicles, textiles and food products among the stronger-performing segments.
Bank credit is also supporting economic activity. Gross bank credit growth accelerated to 18.6% in June, the fastest pace in 25 months, suggesting that financing conditions remain supportive for businesses and consumers.
Government spending on infrastructure and other capital projects is another major factor behind EY’s optimistic forecast. Capital expenditure growth recovered sharply to 23.7% in the first quarter of FY27, after contracting 23.3% in the previous quarter. EY expects the renewed investment push to support demand and strengthen overall economic activity.
The fiscal deficit stood at 18.2% of the annual budget target during the quarter, giving the government room to continue its investment program while remaining focused on fiscal consolidation.
The outlook is not without challenges. Inflation remains an important concern, particularly given higher wholesale prices. Consumer price inflation stood at 4.4% in July, while wholesale price inflation reached 9.8%, driven by mineral oils, food products, metals, chemicals and fuels. EY said elevated wholesale inflation could push nominal GDP growth above the government's budget assumption of 10.04%.
Crude oil prices are another potential pressure point. Higher energy costs can raise transportation and production expenses while putting pressure on household purchasing power.
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India’s external sector faces additional uncertainty from weaker global demand and geopolitical tensions. EY expects India's current account deficit could widen to 1.9% of GDP in FY27, based on OECD projections.
The firm believes India can strengthen its external position by reducing import dependence and increasing domestic value addition. A targeted strategy covering 1,272 products could replace around $189 billion in imports, while stronger export promotion could bolster the country's trade position.
Overall, EY's forecast points to continued resilience in India's economy. Domestic consumption, government investment and improving industrial activity provide strong support, although oil prices, inflation and global trade conditions will remain important factors to watch through FY27.
