EY India has said that amid the global economic slowdown, India will have to rely on domestic growth drivers and strategy of infrastructue push for sustained real GDP growth in the medium term.

"In the presence of continuing global economic slowdown, India may have to rely largely on domestic growth drivers. In this context, GoI's strategy to proceed on the path of fiscal consolidation by relatively de-emphasizing revenue expenditures and creating fiscal space for augmenting capital expenditure aimed at supporting infrastructure growth is the most desirable strategy for sustained real GDP growth in the medium term," EY India said in its Economy Watch for the month of February.

"As government's debt and fiscal deficit to GDP ratios fall, there would be lower claim of the government on available investible surplus in the economy which should lead to interest rate reduction and therefore encourage private investment," the report adds.

The report points out that the share of interest payments in revenue expenditures would also fall over time with a fall in the debt GDP ratio along with some fall in the effective interest rate on government debt. "This would create further space for the government to continue increasing its infrastructure spending," EY says.

EY pointed out in the report that India growth projections by the multilateral agencies may be enhanced later. "Based on the IMF's January 2024 revision, India's growth is projected at 6.7%, 6.5% and 6.5% respectively for the three years covering FY24 to FY26," EY says. 

"Earlier, in their October 2023 issue of World Economic Outlook, they had projected a growth rate of 6.3% each for FY27 to FY29. Even these growth rates may be revised upwards subsequently if India continues with the current strategy combining capital expenditure expansion along with fiscal consolidation," it adds.

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.