UPSC CURRENT AFFAIRS – 30th March 2025

Home UPSC Current Affairs India to grow at 6.5% in FY26: EY Report

India to grow at 6.5% in FY26: EY Report

Why in News?

According to the March 2025 edition of EY Economy Watch, the Indian economy is projected to grow at 6.4% in FY25 and 6.5% in FY26, supported by private consumption and government investment. The report underlines the need for a well-calibrated fiscal strategy that prioritizes human capital development, regional equity, and fiscal prudence, especially in light of India’s goal of becoming a Viksit Bharat by 2047.

Key Economic Estimates

Real GDP Growth (as per NSO revised estimates):
- FY23: 7.6%
- FY24: 9.2%
- FY25: 6.5% (projected)
- FY26: 6.5% (EY projection)
Q3 FY25 GDP growth: 6.2%
- Requires 7.6% growth in Q4 FY25 to achieve the 6.5% annual target.
- This would demand 9.9% growth in private final consumption expenditure (PFCE), which is seen as ambitious under current conditions.

Analysis: Challenges in Meeting Growth Targets

Pressure on Private Consumption
- The EY report notes that a near 10% growth in consumption is difficult, given ongoing geopolitical pressures, inflation risks, and global economic uncertainty.
- Therefore, a more feasible route to achieving targets could be enhancing investment expenditure, particularly government-led capital spending.
Role of Fiscal Policy
- Fiscal deficit may expand due to supplementary demands for grants, but this could be cushioned by higher nominal GDP, which keeps the deficit-to-GDP ratio manageable.
- A balanced approach to fiscal stimulus is needed to sustain growth while avoiding inflationary and debt-related risks.

Human Capital: Long-Term Growth Driver

Need to Expand Education and Health Spending
- India needs to increase public spending on education and healthcare over the next two decades to fully leverage its demographic dividend.

Sector	Current (% of GDP)	Target by FY2048
Education	4.6%	6.5%
Health	1.1%	3.8%

- This is necessary to enhance productivity, employability, and human well-being, especially in low-income and demographically young states.
Regional Equity through Equalisation Transfers
- The report recommends equalisation transfers to support fiscally weaker states in improving health and education access.
- These transfers are crucial to address inter-state disparities and ensure inclusive development.

Revenue Mobilisation Strategy

The report emphasizes the need to raise India’s revenue-to-GDP ratio from 21% to 29% over time.
This would enable the government to sustainably fund social sector investments without breaching fiscal prudence.

Demographics and Growth Cycle

India’s changing age structure will increase the working-age population share.
If supported by adequate investments in human capital and infrastructure, this can create a virtuous cycle of:
- Employment
- Savings
- Investment
- Growth

Conclusion

The EY report reaffirms India’s medium-term growth potential but also flags structural bottlenecks in consumption, fiscal capacity, and human capital. A phased, prudent fiscal strategy—focusing on education, health, and infrastructure, along with revenue mobilisation and regional equity mechanisms—will be key to sustaining momentum toward a Viksit Bharat. The real challenge lies not just in achieving 6.5% GDP growth, but in ensuring that growth is inclusive, resilient, and human development-oriented.