India’s FY27 growth seen at 7.2% as capex and domestic demand cushion global headwinds

India is projected to grow up to 7.2% in FY27, with government investment, domestic demand and improving industrial activity supporting the economy

PGurus Newsdesk

August 30, 2026

Strong domestic demand and government capital spending keep India’s growth momentum resilient despite mounting global economic pressures

EY expects India’s economy to remain resilient with strong domestic demand and front-loaded government capital spending offsetting external pressures and trade risks

India’s economic growth is expected to remain resilient in the financial year 2026-27, with real GDP growth projected in the range of 7% to 7.2%, according to the latest assessment by EY.

The growth outlook comes despite persistent global uncertainties, elevated energy prices and external trade pressures. EY said strong domestic demand and continued government spending on capital projects are expected to provide the key support to the economy.

Government capex emerges as key growth driver

A major pillar of the FY27 growth outlook is the government’s continued focus on capital expenditure.

According to the latest EY assessment, central government capital expenditure surged 23.7% in the first quarter of FY27, indicating that public investment remains an important driver of economic activity.

The front-loading of government spending is expected to support infrastructure development while generating demand across construction, manufacturing and related sectors.

EY said the investment cycle is helping cushion the domestic economy from external pressures and a widening trade imbalance.

Domestic demand keeps economy resilient

Strong domestic consumption is another major factor supporting India’s growth prospects.

EY expects demand to remain buoyant, providing an important buffer against weaker external conditions. Robust household consumption, investment activity and improving industrial momentum are expected to keep the domestic economy on a relatively strong footing.

The latest assessment also points to improving corporate and industrial balance sheets. Bank credit growth accelerated to 18.6% in June 2026, while industrial credit expanded 19.2%, its fastest pace since November 2012, according to the report.

Industrial activity has also shown signs of strengthening, with the Index of Industrial Production rising 7.3% in June, according to the EY assessment.

Global headwinds remain a key risk

Despite the positive domestic outlook, India continues to face significant external challenges.

Higher global energy prices, geopolitical uncertainty and pressure on the external trade balance could weigh on growth in the months ahead.

India’s merchandise trade deficit widened to a six-month high of $32 billion in July, while the rupee averaged around ₹95.8 against the US dollar during the month, according to EY.

The global energy environment remains particularly important for India because higher crude prices can increase import costs, put pressure on inflation and widen the current account deficit.

The Reserve Bank of India has also flagged elevated crude prices, geopolitical tensions, global trade uncertainty and below-normal monsoon prospects as risks to India’s growth and inflation outlook.

India expected to maintain strong growth momentum

EY’s latest forecast is more optimistic than the Reserve Bank of India’s current FY27 growth projection of 6.6%. EY said India’s strong domestic fundamentals and government-led investment cycle could help the economy maintain growth of 7%–7.2%.

The outlook underscores the growing importance of domestic demand in insulating India from weaker global conditions.

While risks from energy prices, geopolitical tensions and external trade remain, continued public investment and resilient domestic consumption are expected to keep India among the world’s fastest-growing major economies.

For FY27, EY expects nominal GDP growth to remain substantially higher than real growth, with the economy continuing to benefit from strong domestic activity and the government’s emphasis on infrastructure and capital investment.

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