EY's latest report projects India's real GDP growth at 7% to 7.2% in FY27, supported by a 7.3% rise in the Index of Industrial Production, 18.6% bank credit growth, and a sharp recovery in government capital expenditure to 23.7%. Challenges include consumer price inflation at 4.4%, wholesale inflation at 9.8%, elevated crude oil prices, and a projected widening of the current account deficit to 1.9% of GDP.
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EY's latest report forecasts India's real GDP expansion at between 7% and 7.2% for FY27, pointing to a sustained upward trajectory for the country's economy. Forecasts point to continued growth, even as high oil prices, international trade headwinds, and geopolitical tensions weigh on the broader environment. The firm anticipates nominal GDP expansion of between 12.5% and 13% over the course of the fiscal year.
Robust household consumption and ongoing public investment in infrastructure and broader capital works are forecast to serve as the primary drivers of economic growth. The country's industrial output gauge expanded by 7.3% in June 2026, recording its strongest monthly growth rate in nearly two years. Factory output expanded at an average rate of 5.7% across the opening three months of FY27, representing the sector's best quarterly showing in two years. Production across the sector climbed 7.8%, with electrical equipment, motor vehicles, textiles, and food products recording some of the strongest gains.
Total bank credit expansion reached 18.6% in June, its strongest rate in over two years, a figure that points to lending conditions remaining broadly accommodative for both companies and households. Public investment in infrastructure and capital projects also underpins EY's economic outlook. After declining by 23.3% in the preceding quarter, capital expenditure growth rebounded to 23.7% in the first quarter of FY27. The firm anticipates that a fresh wave of capital investment will bolster consumer and business demand, lifting broader economic output.
At 18.2% of the annual budget target, the quarterly deficit left the government with capacity to press ahead with its spending programme while keeping fiscal discipline in view.
Rising wholesale costs mean that price pressures across the broader economy continue to draw attention. In July, retail price growth came in at 4.4%, while prices at the wholesale level climbed to 9.8%, propelled by rises across mineral oils, food products, metals, chemicals, and fuels. According to EY, higher wholesale inflation rates have the potential to lift nominal GDP growth beyond the 10.04% figure built into the government's budget projections.
Fluctuations in crude oil prices represent an additional variable, as elevated energy costs tend to feed through into freight and manufacturing outlays while also weighing on consumer spending capacity. The country's trade and external accounts are exposed to mounting headwinds from softening international demand and ongoing geopolitical strains. According to OECD forecasts cited by EY, India's current account deficit may reach 1.9% of GDP by FY27.
According to the firm, India could bolster its trade balance by cutting reliance on foreign goods and expanding homegrown production capacity. An approach encompassing 1,272 goods has the potential to substitute approximately $189 billion worth of incoming merchandise, while enhanced promotion of exports could strengthen the nation's overall trade balance.
EY's projections indicate that India's economy is set to maintain its steady growth trajectory. Private consumption, public expenditure, and a gradual upturn in industrial output are lending underlying support, though energy prices, inflationary pressures, and the trajectory of international trade will be monitored closely through to FY27, according to the firm.