The Union Budget for 2026-27 is expected to reinforce India’s economic growth by supporting strong domestic demand through targeted fiscal measures, complementing the Reserve Bank of India’s growth-oriented monetary stance, according to the latest EY Economy Watch report released on Tuesday.
The report noted that while income tax and GST reforms in the current fiscal year may lead to some revenue sacrifice, unbudgeted gains from non-tax revenues and a possible moderation in revenue expenditure could still help the Centre adhere to its budgeted fiscal deficit and capital expenditure targets.
Revenue measures announced
EY highlighted that the government has recently announced two revenue-enhancing measures—levying excise duty on tobacco products and imposing a national security and public health cess on pan masala. Parliament has passed the relevant legislation, which will come into force from a date yet to be notified.
Domestic demand to remain key growth driver
“Going forward, India may have to continue to rely on its resilient domestic demand to support growth. Along with RBI’s growth-oriented policy, one can look forward to a complementary growth push through the Union Budget for FY27,” EY India Chief Policy Advisor D K Srivastava said.
The Union Budget for 2026-27 is scheduled to be presented in Parliament on February 1, 2026.
External headwinds persist
The report cautioned that global uncertainties are likely to keep net exports as a drag on growth. EY expects the contribution of net exports to real GDP growth to remain negative and possibly worsen in the near term. In Q2 FY26, net exports shaved off 2.1 percentage points from GDP growth, compared with a negative contribution of 1.4 percentage points in Q1, and this trend may persist until trade-related uncertainties ease.
Medium-term outlook remains robust
Despite global headwinds, EY expects India to maintain a strong medium-term growth trajectory, averaging around 6.5 per cent. Srivastava added that growth could be further boosted if domestic private investment gains momentum and global supply chain disruptions ease.
India’s economy grew by 7.8 per cent and 8.2 per cent in the June and September quarters, respectively. The RBI has projected GDP growth of 7.3 per cent for the current fiscal year, up from 6.5 per cent in 2024-25.
