India's economy projected to grow by 6.5% in FY26: EY

India’s economy could expand by 6.5% in the current financial year, supported by falling crude oil prices and manageable inflation levels, despite global trade tensions rising and the international economy slowing down.

The EY's latest Economy Watch report released on Friday outlined four key global factors shaping India’s growth outlook: reduced exports, a global slowdown, declining crude oil prices, and a glut in global production capacities.

"With suitable fiscal and monetary policies, India may be able to sustain a real GDP growth at about 6.5% in FY26 as also in the medium term, while maintaining a CPI inflation below 4 per cent," said D K Srivastava, chief policy advisor at EY India.

One of the main tailwinds for the Indian economy is the sharp fall in global oil prices. Crude prices, which were at $75 per barrel in early April, dropped to $65 by mid-month and are expected to remain in the range of $60–65 per barrel through FY26. This is expected to ease inflationary pressure and help domestic growth.

Exports, meanwhile, are likely to take a hit from rising global tariffs and weakening demand. However, EY suggested that the damage to overall GDP may be limited since net exports have played a smaller role in India’s recent growth.

To navigate this environment, the report recommends India consider anti-dumping measures to counter the risk of oversupply from countries with excess production. It also suggests reworking its crude oil sourcing strategy, such as increasing imports from the US, which could help improve the trade balance and soften the impact of recent tariff hikes.

The report also highlights the potential benefit of a comprehensive bilateral trade agreement with the US, expected by September–October 2025, and urges India to deepen economic ties with the UK, EU, and other key regional players.

"India's response to these global disruptions must be strategic and multi-pronged. We see the potential for India to emerge relatively stronger, provided it continues to manage its macroeconomic fundamentals well through a growth-oriented fiscal policy and accommodative monetary stance," Srivastava added.

In the medium to long term, EY emphasised the need for continued reforms in land and labour laws, more investment in education and skills, and a focus on emerging technologies like AI and generative AI. Expanding the Production-Linked Incentive (PLI) scheme is also seen as a vital growth lever.

The projected growth of 6.5% for FY26 aligns with estimates from global agencies. While the IMF and World Bank forecast India’s growth at 6.2% and 6.3% respectively, the Reserve Bank of India and S&P Global Ratings also peg growth at 6.5%. The OECD and Fitch have placed their estimates slightly lower, at 6.4%.

These projections come amid intensified global trade uncertainty after US president Donald Trump announced reciprocal tariffs on imports from other countries.



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