India's economic growth will continue to be reasonably stable, with projections of 6.2% in fiscal year 2026 (FY26) and 6.3% in FY27, as per a report published by EY on Wednesday.
Growth projections for China have been significantly reduced by 0.6 and 0.5 percentage points for the current fiscal year and next fiscal year respectively, now projected at 4% for both FY26 and FY27.
EY's 'Economy Watch May' report sees modest growth for China in 2027, after which a slowdown is expected.
India is expected to realize a real GDP growth rate of about 6.5% in FY26 despite ongoing global uncertainties.
The report observes, "The path of headline inflation in India is projected to remain quite stable. Consumer Price Index (CPI) inflation is projected at 4.2% for the year 2025 (FY26), 4.1% for 2026 (FY27), and 4% thereafter, closely in line with the target of the central bank.
With inflation expected to remain at or below 4% on average in FY26, India may be able to maintain its 6.5% GDP growth rate on the back of a sustained ease cycle in interest rates and renewed government emphasis on capital expenditure.
The report further states, "We anticipate the first-quarter FY26 inflation to come in around 3.4% on average, and full-year inflation at between 3.5% and 4.0%. This positive inflation scenario underpins the chances of additional policy rate reduction in FY26. The repo rate could by the end of 2025 be cut to around 5.25%."
Recent high-frequency economic data for April and May 2025 indicate the need for continued policy support to maintain growth momentum. The manufacturing Purchasing Managers' Index (PMI) rose to a 10-month high of 58.2 in April, while the services PMI increased to 58.7, well above its long-term mean of 54.2. Gross GST collections also reached a record Rs 2.37 lakh crore in April 2025, the highest ever monthly revenue since GST implementation.
Bank credit growth was steady at 12.1% during March 2025, comparable to the 12% recorded in February. Merchandise imports and exports picked up sharply in April at 9.0% and 19.1%, respectively, from March's 0.7% and 11.4%, partly with positive base effects.
EY's report indicates that India will have to coordinate monetary and fiscal policy carefully in order to insulate the economy from the adverse impact of internal problems and the global slowdown.
Amidst this trying time, the government needs to revive capital spending growth and extend the repo rate cutting cycle so that fiscal and monetary support in tandem keep India's real GDP growth at more than 6.5% in FY26," it underscored.
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