India’s economic growth is projected to remain stable at 6.2% in FY26 and 6.3% in FY27, while China’s forecast has been sharply revised down to 4% for both years, according to EY’s ‘Economy Watch May’ report released on Wednesday.
The report noted a ‘tangible downward revision’ of 0.6 and 0.5 percentage points in China’s growth estimates for this fiscal and the next.
In contrast, India’s prospects look favourable with real GDP growth expected to reach 6.5% in FY26.
Inflation Stability To Support Growth
EY expects India’s CPI inflation to remain steady at 4.2% in FY26, 4.1% in FY27, and around 4% thereafter, aligning with the Reserve Bank of India’s target.
For Q1 FY26, inflation may average 3.4%, creating room for further monetary easing.
The repo rate, according to the report, could be reduced to 5.25% by the end of 2025. This, combined with capital expenditure from the government, should maintain India’s growth momentum.
High-Frequency Indicators Reflect Momentum
India’s manufacturing PMI rose to a 10-month high of 58.2 in April 2025, while the services PMI stood at 58.7.
GST collections hit a record ₹2.37 lakh crore in April.
Merchandise exports and imports grew 9.0% and 19.1%, respectively, indicating strong trade activity.
Bank credit growth remained stable at 12.1% in March.
EY stated that India must use both fiscal and monetary tools to shield its economy from domestic and global shocks.
The report concluded that sustaining the government’s capital spending and continuing repo rate cuts are essential for keeping India’s GDP growth above 6.5% in FY26.
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