India’s GDP Growth Likely to Stay Strong at 7-7.2% in FY27 Despite Global Risks

India’s real GDP growth is likely to remain resilient at 7 to 7.2% in FY27, supported by strong domestic demand and the government’s continued focus on capital expenditure, while nominal GDP growth could reach 12.5 to 13%, according to a recent report by EY. The firm said India’s economic prospects remain relatively strong despite geopolitical uncertainty, elevated crude oil prices, and a weaker global trade environment.

Key Figures From the EY Report

• Real GDP growth forecast for FY27: 7 to 7.2%
• Nominal GDP growth projection: 12.5 to 13%
• IIP growth in June 2026: 7.3%, a 23-month high
• Average industrial growth in Q1 FY27: 5.7%, highest in eight quarters
• Gross bank credit growth in June: 18.6%, a 25-month high
• Government capex growth in Q1 FY27: 23.7%, recovering from a 23.3% contraction in Q4 FY26
• Fiscal deficit as of Q1 FY27: 18.2% of the annual budget target
• CPI inflation in July: 4.4%
• WPI inflation in July: 9.8%
• Current account deficit projection for FY27: 1.9% of GDP, per OECD

What Is Driving Industrial and Credit Growth

The outlook comes against the backdrop of improving industrial activity.

• IIP growth accelerated to a 23-month high of 7.3% in June 2026, taking average industrial output in Q1 FY27 to 5.7%, the highest in eight quarters.
• Manufacturing output rose 7.8%, with electrical equipment, motor vehicles, textiles, and food products among the stronger-performing segments.
• Manufacturing PMI eased to 53.5 in July from 54.2 in June, while services PMI declined to 53.3 from 57.4. Both remained above the 50 mark, indicating continued expansion.
• Gross bank credit growth accelerated to a 25-month high of 18.6% in June, pointing to continued financial support for economic activity.

How Government Capex and Fiscal Position Look

Government capital expenditure growth recovered sharply to 23.7% in Q1 FY27 after contracting 23.3% in Q4 FY26. EY said the stronger capex push should support demand and improve real GDP prospects going forward.

The fiscal deficit remained contained at 18.2% of the annual budget target through the first quarter. EY noted that higher WPI inflation could push nominal GDP above the government’s budgeted assumption of 10.04%, potentially supporting revenue receipts and allowing continued capex while maintaining the fiscal deficit target.

Where Inflation Stands and Why WPI Matters

Inflation remains a key risk in the near term. CPI stood at 4.4% in July, while WPI remained elevated at 9.8%, driven by mineral oils, food articles, metals, chemicals, and fuels.

External Risks and the Current Account

External pressures remain significant. EY cited higher energy costs and weaker global demand as constraints on export performance. The current account deficit could widen to 1.9% of GDP in FY27, according to OECD projections cited in the report.

EY nevertheless sees scope to strengthen India’s external position through two channels:

• Import substitution covering 1,272 products that could potentially replace around $189 billion of annual imports
• Export promotion alongside domestic value addition to reduce supply-side vulnerabilities over the medium term

Final Outlook