India's Economy Set To Grow 6.5% In FY26 Amid Global Headwinds: EY

New Delhi, Apr 26 (KNN) India's economy is poised to expand by 6.5 per cent in the current financial year, according to EY's latest Economy Watch report released on Friday. 

This growth is expected to be supported by falling crude oil prices and manageable inflation levels, even as global trade tensions rise and the international economy slows down.

The report 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 per cent in FY26 as also in the medium term, while maintaining a CPI inflation below 4 per cent," said D K Srivastava, Chief Policy Advisor, EY India.

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

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

These projections come amid intensified global trade uncertainty following US President Donald Trump's announcement of reciprocal tariffs on imports from other countries.

(KNN Bureau)