India's Economy on Track for FY27 Growth

Global energy markets are set for a gradual normalization, which is expected to alleviate supply-side pressures and improve cost conditions, thereby supporting both economic growth and inflation outcomes in India during FY27. The EY Economy Watch report projects India's Consumer Price Index (CPI) inflation to be 4.5% and the fiscal deficit to stand at 4.4% of the GDP for FY27. This outlook contrasts with the Reserve Bank of India's earlier assessment of 6.6% real GDP growth and a higher CPI inflation projection of 5.1% before a peace deal in West Asia. Should the situation in West Asia normalize quickly, inflation pressure could ease, though it may remain between 4.5% and 5% for the latter part of FY27.

A key characteristic anticipated for FY27 is a higher nominal GDP growth compared to FY26, estimated at approximately 12.5%. This robust nominal GDP growth is predicted to strengthen revenue streams, aid fiscal consolidation efforts, and simultaneously create fiscal space for continued investment in developmental projects and infrastructure. Underlying economic strength is indicated by healthy manufacturing and services activity, consistent credit growth, improving industrial output, and resilient automobile demand, all pointing towards India's medium-term growth prospects being on track due to strong domestic drivers.