Budget may consolidate growth by backing domestic demand: EY report

The Union Budget for 2026-27 may reinforce growth by backing strong domestic demand through targeted fiscal support, complementing the RBI's growth-oriented monetary stance, the EY Economy Watch report said on Tuesday.

It said although there may be some revenue sacrifice due to income tax and GST reforms during the current fiscal year, some unbudgeted additional receipts under non-tax revenues and some reduction in the budgeted magnitude of revenue expenditures may still enable the Government to adhere to the budgeted targets for fiscal deficit and capital expenditure.

Also, two revenue enhancing measures have recently been announced relating to excise duty on tobacco products and national security and public health cess, it said. Parliament has passed two laws recently to levy excise duty on tobacco products and cess on pan masala. The law will be effective from a date to be notified.

“Going forward, India may have to continue to rely on its resilient domestic demand to support growth. Along with RBI's growth-oriented policy, one can look forward to a complementary growth push through the Union Budget for FY27,” EY India Chief Policy Advisor D K Srivastava said.

The 2026-27 Budget is slated to be presented in Parliament on February 1, 2026.

In the presence of continuing global headwinds, the EY Economy Watch expects the contribution of net exports to real GDP growth to remain negative and possibly increase in its magnitude.

In the second quarter of the current fiscal year, the negative contribution of net exports was (-)2.1 percentage points, rising from (-)1.4 percentage points in Q1, FY26. This impact may continue till trade related uncertainties dissipate, it added.

Srivastava expects India to maintain robust medium-term growth profile with an average growth of 6.5 per cent that will be further supported if domestic private investment growth also gathers momentum and global supply chain issues ease off.

Indian economy grew 7.8 per cent and 8.2 per cent in the June and September quarters, respectively. The RBI expects GDP to grow at 7.3 per cent in the current fiscal year, up from 6.5 per cent in 2024-25.