India's FY27 GDP Growth Projected at 7-7.2% Amid Strong Domestic Demand and Capex: EY Report

India's real GDP growth is projected to remain resilient at 7 per cent to 7.2 per cent in FY27, according to a recent report by EY. The growth is expected to be supported by buoyant domestic demand and a continued government focus on capital expenditure. Nominal GDP growth is estimated to reach 12.5 per cent to 13 per cent.

The economic outlook remains relatively strong despite geopolitical uncertainty, elevated crude oil prices, and a weaker global trade environment. This projection comes against the backdrop of an improvement in industrial activity. EY reported that India's overall Index of Industrial Production (IIP) growth accelerated to a 23-month high of 7.3 per cent in June 2026. This brought the average industrial growth in the first quarter of FY27 to 5.7 per cent, marking the highest in eight quarters. Manufacturing output rose by 7.8 per cent, with motor vehicles, electrical equipment, textiles, and food products emerging as stronger-performing segments.

However, high-frequency indicators point to some moderation in momentum. The manufacturing PMI eased to 53.5 in July from 54.2 in June, while the services PMI declined to 53.3 from 57.4. Both indicators remained above the 50 mark, signifying continued expansion. Additionally, gross bank credit growth accelerated to a 25-month high of 18.6 per cent in June, indicating sustained financial support for economic activity.

On the fiscal front, government capital expenditure growth recovered sharply to 23.7 per cent in the first quarter of FY27, following a 23.3 per cent contraction in the fourth quarter of FY26. Meanwhile, the fiscal deficit remained contained at 18.2 per cent of the annual budget target. EY noted that this stronger capex push should bolster demand and improve real GDP growth prospects.

Inflation remains a key risk factor. Consumer price inflation stood at 4.4 per cent in July, while wholesale price inflation remained elevated at 9.8 per cent, driven by mineral oils, food articles, metals, chemicals, and fuels. According to EY, higher WPI inflation could push nominal GDP growth above the government's budgeted 10.04 per cent assumption, potentially supporting revenue receipts and enabling continued capex while maintaining fiscal deficit targets.

External risks also remain significant, with EY highlighting higher energy costs and weaker global demand as constraints on exports. OECD projections indicate that India's current account deficit could widen to 1.9 per cent of GDP in FY27. Nevertheless, EY sees potential to strengthen India's external position through import substitution and increased domestic value addition. A targeted strategy covering 1,272 products could substitute approximately $189 billion of imports, while export promotion alongside domestic manufacturing could help mitigate supply-side vulnerabilities over the medium term.

"The macroeconomic projections outlined by EY highlight the underlying resilience of the Indian economy, driven by steady domestic demand and a renewed push in government capital expenditure. For founders and business leaders in the startup ecosystem, this sustained growth environment, coupled with robust credit expansion, offers a stable foundation for scaling operations. However, businesses must remain cautious of external headwinds, energy costs, and inflationary pressures, which require careful financial planning and a focus on domestic value addition to navigate potential market volatility effectively." — Dr. Shishir Gupta, Founder & CEO, StartupLanes