EY predicts India’s economic growth will slow down in FY26 due to global challenges
India’s economic growth is expected to slow down in the current financial year due to both international and local factors, according to EY’s latest Economy Watch report released on Wednesday, adding that it may have to depend on a careful mix of monetary and fiscal policies to maintain growth in the near future.
Despite the expected moderation, India is likely to remain one of the fastest-growing large economies, the EY report noted. This is due to strong domestic demand, lower inflation, and supportive monetary policies which may encourage private investment.
“India’s economic growth for FY26 is expected to moderate, influenced by a mix of global and domestic developments,” the report stated.
Global challenges weigh on outlook
The EY analysis highlights that several global issues are leading to a cautious outlook. These include ongoing problems in supply chains, recent trade tariffs introduced by the US, and general uncertainty in global trade and geopolitics.
The report notes that in the short term, India might need to balance its approach using both fiscal and monetary measures to keep up the economic pace.
“On the monetary front, a continuation of the ongoing rate cut cycle could provide support to consumption and investment. On the fiscal side, reviving the momentum in public investment, especially GoI’s capital expenditure, which witnessed a moderation in growth in FY25, will be important to sustain economic activity,” EY said.
Official growth forecasts
In February, the National Statistical Office (NSO) estimated that India’s economy would grow by 6.5 per cent in 2024–25. It also projected quarterly growth rates of 6.5 per cent for June, 5.6 per cent for September, and 6.2 per cent for December.
The NSO is set to release provisional GDP data for FY25 and the figures for the fourth quarter on May 31.
Recent monetary policy actions
In April, the Reserve Bank of India’s Monetary Policy Committee (MPC) — comprising three RBI officials and three external experts — unanimously agreed to cut the repo rate by 25 basis points to 6 per cent. A similar reduction was made in February, marking the first rate cut since May 2020. Economists expect that the RBI will continue its rate-cutting cycle, given continuing low inflation, a good kharif crop, and expectations of an above-normal monsoon this year, which will help the farm economy.
For the 2025–26 financial year, the RBI has also projected GDP growth at 6.5 per cent. The next MPC meeting is expected to take place on June 6.
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