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According to a recent report by EY (Ernst & Young), India’s economy is projected to grow at a healthy rate of 6.5% in FY26, driven by multiple internal and external factors, particularly the decline in crude oil prices. The EY Economy Watch report for April outlines four key factors that will significantly impact India’s growth trajectory in the upcoming fiscal year and beyond. These include reduced exports, the global economic slowdown, falling crude oil prices, and excess global production capacities. Despite these challenges, India’s real GDP growth is expected to maintain a stable growth rate of about 6.5% in FY26 and the medium term, while CPI inflation is likely to remain below 4%.

Key Factors Driving Growth:

The global economy is facing significant challenges, such as a slowdown in trade, rising tariffs, and weakening global demand, all of which have the potential to affect India’s export performance. However, EY notes that the impact of these factors on India’s overall GDP will be limited. Net exports have played a relatively subdued role in India’s recent growth, meaning the slowdown in exports may not drastically affect the country’s economic expansion. Crude oil prices, which have a significant impact on India’s current account deficit and overall inflation, are predicted to decline, which will provide some relief to the economy.

Strategy for Short-Term Growth:

To address the potential challenges posed by a slowing export market and global trade tensions, EY suggests that India should consider a strategic shift in its crude oil import sources, potentially increasing its imports from the United States. This change could help improve India’s trade balance and reduce reciprocal tariff rates. Additionally, a comprehensive bilateral trade agreement between India and the US, expected to be finalized by September-October 2025, could provide further stability to trade relations and enhance economic cooperation between the two nations. These actions would complement India’s overall goal of balancing trade deficits and fostering stronger economic ties with key global markets.

Long-Term Growth Outlook:

Looking beyond the immediate short-term strategy, EY emphasizes the need for India to accelerate key reforms in several critical areas to secure robust growth in the coming years. These include land and labor reforms, which are essential to improve productivity and attract investment. The report highlights the importance of expanding India’s Production Linked Incentive (PLI) schemes to further boost manufacturing output and create jobs. Additionally, India must continue to focus on investment in education, skilling initiatives, and emerging technologies such as Artificial Intelligence (AI) and Generative AI (GenAI) to ensure future growth and innovation.

A Sustainable Growth Path:

The forecasted 6.5% growth in FY26 reflects a sustainable growth path for India, despite external challenges. India’s economy is increasingly resilient, driven by internal reforms, technological advancements, and prudent fiscal and monetary policies. By focusing on long-term growth drivers, such as digital transformation, education, and skills development, India can bolster its competitive edge on the global stage.

Moreover, the falling crude oil prices present a significant opportunity for India to optimize its energy imports, which can have a direct impact on reducing inflationary pressures and improving consumer purchasing power. This will allow the Indian economy to navigate the complexities of the global slowdown while maintaining growth momentum.

Conclusion:

India’s economic growth in FY26 is set to be shaped by falling crude oil prices, supportive fiscal policies, and a strategic trade agreement with the US. While export growth may slow, India’s ability to adapt and reform its economy, particularly through investments in technology and key sectors, will keep the GDP growth strong at 6.5%. The medium-term strategies, such as land and labor reforms, digital innovation, and expansion of PLI schemes, are all crucial to maintaining this growth trajectory. With a stable economic environment and a focus on sustainable development, India is poised for continued economic resilience in the years to come.

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