India's growth more stable in FY26 and FY27 as China falters: EY report

New Delhi, May 28 (IANS) India's growth is projected to be relatively more stable, at 6.2 per cent in FY26 and 6.3 per cent in FY27, while there has been a "tangible downward revision" of 0.6 per cent points and 0.5 per cent points this fiscal and the next in growth prospects for China, which now stand at 4 per cent each, an EY report said on Wednesday.

For China, modest growth is anticipated in 2027, followed by a subsequent decline, according to EY's 'Economy Watch May' edition.

In spite of ongoing global uncertainties, India may be able to achieve a real GDP growth of 6.5 per cent in FY26.

"The trajectory of headline inflation in India is forecasted to be relatively stable. CPI inflation at 4.2 per cent in 2025 (FY26), 4.1 per cent in 2026 (FY27), and 4 per cent thereafter is close to the central bank’s target level," said the report.

With CPI inflation likely to be contained at 4 per cent or below, on average, in FY26, India should be able to achieve a real GDP growth of 6.5 per cent with a continued rate reduction cycle in FY26 along with the government’s restoration of strong emphasis on capital expenditure.

"Our expectation is that Q1 FY26 inflation may average around 3.4 per cent, with full-year inflation in the range of 3.5 per cent to 4.0 per cent. This augurs well for a continuation of the policy rate reduction cycle in FY26. We expect that by the end of the calendar year 2025, the repo rate may be brought down to 5.25 per cent," it mentioned.

High-frequency indicators for April and May 2025 suggest the need for sustained policy support to maintain the growth momentum.

The manufacturing PMI increased to a 10-month high of 58.2 in April 2025, while the services PMI increased to 58.7, well above its long-run average of 54.2. Gross GST collections stood at Rs 2.37 lakh crore in April 2025, the highest-ever monthly collections since the inception of GST.

Growth in gross bank credit remained nearly stable at 12.1 per cent in March 2025, close to its level of 12.0 per cent in February 2025. Growth in merchandise exports and imports increased to 9.0 per cent and 19.1 per cent, respectively, in April 2025 from 0.7 per cent and 11.4 per cent, respectively, in March 2025, aided partly by base effects.

According to the EY report, India may need to rely on both its monetary and fiscal policy levers to mitigate the adverse impact of domestic developments and global slowdown on its GDP growth.

"At this juncture, the government’s capital expenditure growth momentum needs to be restored and supplemented by a continuation of the repo rate reduction cycle so that monetary and fiscal policy support can ensure that India’s real GDP growth does not slip below 6.5 per cent in FY26," the report emphasised.

--IANS

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