Economy to grow at 6.5% in FY26 despite global uncertainties: EAC-PM Chair

Business Standard

9 hours ago

The Indian economy is expected to grow at 6.5 per cent in the current financial year, despite geo-political tensions and trade policy uncertainties, Economic Advisory Council to the Prime Minister (EAC-PM) Chairman S Mahendra Dev said on Tuesday.
In an interview with PTI, Dev further said that domestic growth will be driven by low inflation, resulting from good monsoon and benign interest rate regime, triggered by three back-to-back rate cuts by the Reserve Bank of India.
"There are significant global headwinds like the twin shocks of geo-political tensions and trade policy uncertainties.
"However, the Indian economy is resilient and continues to be the fastest growing country among large economies," the eminent economist said.
According to Dev, high-frequency indicators for the first two months of 2025-26 indicate resilient performance of the domestic economy.
"A 6.5 per cent of GDP growth for FY26 is feasible despite global uncertainties. India's medium-term growth prospects seem to be robust with sound fiscal management," he said.
Dev also emphasised that rising government capital expenditure will have positive impact on growth with a healthy expansion in private consumption. The International Monetary Fund (IMF) and the World Bank have slashed India's growth projections for 2025-26 to 6.2 per cent and 6.3 per cent, respectively, citing uncertain global environment and high trade tensions.
The Indian economy is estimated to have grown at 6.5 per cent in the previous fiscal year.
As per the Reserve Bank of India's projections, the country's economy will expand at the same rate in the current fiscal year as well.
Dev said there are many domestic tailwinds such as low inflation, rate cuts, and cash reserve ratio (CRR) cut by the RBI, expected good monsoon, measures in the last Budget like rising capital expenditure, tax reduction, etc.
"These tailwinds may raise both rural and urban demand by raising both investment, consumption and some push to exports," he said, adding that on the supply side, agriculture and services are doing well and the growth of manufacturing will improve over the years.
Responding to a question on inflation, Dev said with a good monsoon, food inflation should be under control this year.
"Projections show continued moderation in the prices of many commodities, including crude oil.
"Of course, we have to be watchful about the geopolitical uncertainties and tariff-related tensions, which can raise commodity prices," he said.
CPI headline inflation was 2.10 per cent in June 2025 and it is the lowest year-on-year inflation after January 2019. Crude oil prices are currently under control.
Food inflation in June 2025 was -1.06 per cent. Assuming a normal monsoon, RBI projected inflation at 3.7 per cent for FY26.
Responding to a question on surge in net outward foreign direct investment (FDI), Dev pointed out that the World Investment report 2025 shows that global FDI inflows grew a marginal 3.7 per cent in gross FDI to USD 1,509 billion in 2024.
"This is much lower than the global FDI inflows that had peaked nine years ago at USD 2,219 billion in 2015," he said.
In other words, Dev said global FDI itself is growing slowly.
Noting that India's FDI inflows have increased 14 per cent in FY25 -- although there was a moderation in net FDI -- he said it is known that there was net outward FDI and a rise in repatriation.
"Exits and repatriation are part of the process and indicates a sign of a mature market. Unless you enable exit, the country can't attract investment," the EAC-PM chairman said.
He pointed out that it may be noted that non-resident deposits and external commercial borrowings (ECBs) recorded higher net inflows in FY 25 compared to FY24.
"Higher gross FDI also indicates that India continues to remain an attractive investment destination," Dev said.
Referring to the government's push for public capital expenditure, Dev said increasing government capex will also have impact on private sector investment as studies have shown that creation of national highways and rural roads have increased businesses in rural and urban areas.
"In other words, government capex will have multiplier effects. There are some green shoots on private capex," he asserted.
Pointing out that many state governments are also attracting domestic and foreign private investment, he said the corporate sector and banks are earning more profits now and their balance sheets are in good shape.
"So, there is no problem of capital availability. Industry is positive about India's growth story," Dev said.
While the corporate sector is probably holding investment in capacity expansion due to global uncertainties and overcapacity in some countries like China, increase in rural and urban demand will facilitate more private investment, he said.
"Many firms turned debt free and doubled their cash on the books. India Inc has to make new investments instead of keeping the cash," the EAC-PM said.
Citing Economic Survey 2024-25, which had argued for deregulation and easing "compliance burden", he said there is a need for more progress on "ease of doing business" at the state level.
"Hopefully, private capex will be more once the domestic demand increases further and global uncertainties are reduced," Dev said, adding that once the tariff concerns are over, there will be more opportunity for Indian industry to invest.