EY Upgrades India’s FY26 Growth Projection to 6.7% Backed by GST 2.0

On Monday, EY revised upwards its estimate of India's real GDP growth in FY26 to 6.7%, from the earlier estimate of 6.5%, on the back of the positive effect of recent GST reforms.

The September issue of Economy Watch by the firm observed that the upward revision is based on expectations of monetary easing and robust domestic demand fueled by GST 2.0 reforms even as global headwinds persist to impact exports.

DK Srivastava, EY India's Chief Policy Advisor, commented, "As GST 2.0 reforms enhance disposable incomes and domestic consumption, and efforts in trade diversification create new opportunities, India is poised to maintain its growth momentum in FY26. Strategic investment in technology and focused policy initiatives will be critical in converting reforms into sustainable long-term economic benefits."

Within the new GST regime, the slabs have been merged into two broad slabs of 5% and 18%, along with a specific 40% slab, in place of the erstwhile 12% and 28% slabs. EY emphasized that this re-structuring will reduce prices in employment-intensive industries like textiles, consumer durable electronics, automobiles, healthcare, and foodstuffs.

Agriculture-related industries such as fertilizers, agri-machinery, and renewable energy are expected to gain from lowered input costs. By relaxing household pockets and stimulating consumption, the reforms are seen to support demand while softening near-term revenue pressures.

Tariff uncertainty and trade under scrutiny
EY's report also identified that tariff uncertainties and supply chain disruption continue to be threats to India's exports. It stressed that India remains dependent on the US and China for imports as well as exports and that deeper engagement with BRICS+ economies is needed in order to decrease such dependence.

Policymakers have also established a bold goal of US$500 billion of bilateral trade with the US by 2030, divided equally between exports and imports. To reach it, there will need to be close to 20% growth a year in the priority sectors, particularly services exports and imports of crude, natural gas, and defence products. EY added that increasing services exports would rely on increased use of AI-based technologies.

The report opined that, with GST-driven domestic support, anticipated monetary easing, and chances to remodel trade arrangements, India's growth prognosis is robust. The speed with which the economy continues to sustain momentum in FY26 would depend on striking a balance between reform-fueled growth and external issues.