India’s real GDP growth estimated at 6.5% for FY26: EY Report
Available high frequency data for January and February 2025 point to a mixed picture of the growth momentum of the Indian economy in the last quarter of FY25.
With the annual real GDP growth for FY25 estimated at 6.5% as per SAE, the implied growth for 4QFY25 is estimated to be higher at 7.6%. (Image: Freepik)
The March edition of EY Economy Watch projects India’s real GDP growth at 6.4% for FY25 and 6.5% for FY26, highlighting the need to realign fiscal policy to support the country’s journey toward Viksit Bharat. With a rising population and evolving economic structure, additional investments in education and healthcare may be essential to sustaining long-term growth and improving human capital outcomes.
As per the EY India report, over the next two decades, India may need to gradually increase its general government education and health expenditures, bringing it closer to levels seen in high-income countries. The analysis suggests that:
* Education spending by the government may need to rise to 6.5% of GDP by FY2048 from its current 4.6%, considering India’s young population and growing workforce requirements.
* Government health expenditure may need to increase to 3.8% of GDP by FY2048, compared to 1.1% in 2021, to ensure improved healthcare access and outcomes.
* Low-income states with higher young populations, may require additional support through equalization transfers to meet education and healthcare needs.
The EY India report emphasizes that a phased approach to fiscal restructuring can help meet these targets without compromising growth. Increasing the revenue-to-GDP ratio from 21% to 29% over time could provide necessary resources while maintaining fiscal discipline.
DK Srivastava, Chief Policy Advisor, EY India, said, “India’s changing age structure is expected to increase the share of working-age individuals in the total population. If productively employed, this can create a virtuous cycle of growth, employment, savings, and investment. To achieve this, India may need to raise its revenue-to-GDP ratio and gradually increase the share of government spending on health, education, and infrastructure.”
“The Indian economy has already been facing significant uncertainties on account of the global slowdown and supply chain disruptions. Their impact on India’s export prospects may remain unpredictable until the mutual tariff levels settle down. A suitable policy for the Indian economy may be for the government to continue to rely on infrastructure expansion, which has relatively larger multipliers. India is likely to also benefit from the expected lower global energy prices. It is also expected that the policy interest rate may be lowered by another 50-75 basis points during the course of FY26. This may be facilitated by a lower trajectory of CPI inflation, which has already fallen below 4% in February 2025. This has happened for the first time since August 2024. As a result, private investment may also start picking up. Our assessment for India’s real GDP growth for FY25 and FY26 is 6.4% and 6.5%, respectively,” he added.
The EY Economy Watch also explores how equalization transfers can help bridge regional disparities, ensuring that states with lower fiscal capacity receive adequate funding for social sector investments. The report suggests that these transfers may be key to reducing inter-state inequality in access to education and healthcare. A well-calibrated fiscal strategy that supports human capital development while maintaining fiscal prudence could significantly enhance India’s long-term growth prospects.
