EY raises FY26 growth outlook to 6.7% on GST 2.0, monetary easing

EY on Monday revised India’s real GDP growth in FY26 to 6.7%, against earlier estimates of 6.5% on the back of resilient GST 2.0 reforms, monetary easing, and the overall growth story.

 “The increase reflects expectations of monetary easing alongside the demand stimulus from GST 2.0 reforms, even when some global headwinds continue to affect India’s export prospects in goods and services,” the agency said in its Economy Watch report for September.

“With GST 2.0 reforms boosting disposable incomes and domestic demand, and trade diversification efforts opening new opportunities, India is well-positioned to sustain its growth momentum in FY26. Strategic investments in technology and targeted policy measures will be key to translating reforms into long-term economic gains,” said D.K. Srivastava, chief policy advisor, EY India.

Stressing that the GST 2.0 is a game-changer for demand and industry, EY highlighted that the new structure consolidates rates into two slabs of 5% and 18%, alongside a special 40% rate, while eliminating the 12% and 28% categories.

“This rationalisation is expected to lower prices across employment-intensive sectors such as textiles, consumer electronics, automobiles, healthcare, and food products. Producers in agriculture-linked sectors, including fertilisers, agri-machinery, and renewable energy, also stand to benefit from lower input costs, translating into wider gains for farmers,” EY said.  

“By lifting disposable incomes and boosting consumption, the reforms are expected to offset short-term revenue shortfalls, strengthen demand, and support the growth base,” it added.

On India’s trade diversification challenge, EY said that ongoing tariff-related uncertainties and supply chain disruptions in global trade present India with a timely opportunity to reassess its trade patterns with the U.S. and China. “Currently, India’s export destinations and import sources remain concentrated, with considerable reliance on these two economies,” it said.  

“Policymakers have set a target of $500 billion in Indo-U.S. trade by 2030, equally split between exports and imports. Achieving this goal may require annualised growth of nearly 20% in key segments, particularly Indian exports of services to the U.S. and imports of goods, including crude, natural gas, and defence goods from the U.S. For services, further investments in AI-based technologies will be critical to sustaining competitiveness and scaling trade volumes,” Economy Watch said.

“With GST reforms boosting domestic demand, supportive monetary conditions, and opportunities to realign trade partnerships, India’s growth story remains resilient, underscoring the balance between reform-driven momentum and external challenges,” it added.