India’s Economy to Grow at 6.5% in FY26! EY Report Calls for Fiscal Prudence & Human Capital Investment

India's economy is projected to grow at 6.5% in the fiscal year 2025-26, according to the latest EY Economy Watch report. The report underscores the importance of a well-calibrated fiscal strategy that not only supports human capital development but also ensures fiscal prudence to sustain long-term economic growth.

For FY25, the report estimates India's real GDP growth at 6.4%, aligning with the National Statistical Office (NSO)’s revised projections. The latest national accounts data further indicate that India’s real GDP growth rates for the previous years stand at 7.6% in FY23, 9.2% in FY24, and an estimated 6.5% in FY25.

Fourth-Quarter Growth Challenge

A key concern raised in the report is the challenge of achieving the projected 7.6% growth rate in the fourth quarter of FY25. The report states that such growth would require a 9.9% increase in private final consumption expenditure, a level not seen in recent years. To bridge this gap, the report suggests increasing investment expenditure, emphasizing the role of government capital spending in driving economic momentum.

Fiscal Deficit and Nominal GDP Impact

The report highlights that fiscal deficit, based on revised estimates, could be influenced by supplementary demand for grants. However, higher nominal GDP might act as a buffer to absorb any additional government spending.

Investment in Human Capital for Sustained Growth

The EY India report stresses that with India's growing population and evolving economic landscape, there is an urgent need for greater investments in education and healthcare. Over the next two decades, India may need to increase its public spending on these sectors to levels comparable to high-income nations to improve human capital outcomes and sustain long-term economic growth.

As India moves forward, striking a balance between fiscal responsibility and strategic investment in key sectors will be crucial in maintaining economic resilience and ensuring inclusive growth.