Government consumption expenditure has remained muted due to fiscal consolidation efforts by the government
Chennai: Consumption demand, especially from the rural markets, will help India achieve GDP growth of 6.9 per cent in FY27, despite the global economic uncertainties, finds India Ratings. However, monsoon predictions and weak currency and sluggish global trade can slow down the growth against the current year.
As per the projections, India will grow by 6.9 per cent in FY27 against 7.4 per cent in FY26. Domestic reforms, including the income tax cut in the FY26 budget, GST rationalisation, and three foreign trade agreements with Oman, UK, and New Zealand, will help the economy withstand global uncertainties caused mainly by the US tariffs.
After remaining subdued at 5.6 per cent in FY24, Private Final Consumption Expenditure recovered to 7.2 per cent in FY25 and improved further to 7.5 per cent in H1 FY26. While rural demand has remined resilient, urban demand is a drag on the overall consumption demand. Five consecutive quarters of agricultural GVA growth exceeding 3.5 per cent and the decline in inflation in FY26 have enhanced the scope of a sustained consumption demand.
Ind-Ra expects PFCE to grow 7.6 per cent in FY27 against 7.4 per cent in FY26. Key factors leading to strong consumption demand are strong services growth, low inflation leading to real wage rate turning positive, income tax cut, and GST rationalisation.
Government consumption expenditure has remained muted due to fiscal consolidation efforts by the government. Gross Fixed Capital Formation, however, has remained buoyant due to the continued thrust on capital expenditure by the Centre and state governments along with residential housing.
However, the El Niño pattern from mid-2026, a weak currency due to weak capital flows, sluggish global trade growth, strong growth in FY26, and slower growth of net production taxes due to GST rationalisation are headwinds to growth. Another emerging headwind is artificial intelligence, said Devendra Kumar Pant, Chief Economist and Head Public Finance, Ind-Ra.
On the global front, the US unilateral tariff hikes have increased the global economic uncertainty, leading to the expectations of slower global growth in 2025. However, the impact is now expected to be lower than estimated earlier.
