Strong services, public capex keep India's growth resilient amid global uncertainties: EY
New Delhi, July 29
India's economy has remained resilient despite the ongoing Middle East crisis and broader global uncertainties, supported by strong services activity, industrial growth, exports, bank credit expansion and a recovery in public capital expenditure, according to a report by Ernst & Young.
The report said recent high-frequency indicators suggest domestic growth momentum remained intact during the first quarter of FY27 even as geopolitical developments weighed on the global economic environment.
"Utilizing available information, we consider India's 1QFY27 growth prospects to be quite robust in spite of the crisis in Middle East," the report said.
According to EY, the Centre's capital expenditure grew 13.4 per cent during April-May FY27, recovering after slowing to 1.6 per cent in FY26. Total government expenditure rose 18.1 per cent during the period, while the Centre's revenue account remained in surplus, supported by higher dividend transfers and strong direct tax collections. The fiscal deficit accounted for 9.6 per cent of the annual Budget target during the first two months of the fiscal year.
The report noted that India's manufacturing and services sectors continued to expand in June, with the Purchasing Managers' Index (PMI) for manufacturing at 54.2 and services at 57.4, indicating sustained business activity despite moderating from previous months. Industrial production also remained firm, while the newly introduced Index of Services Production recorded 20.8 per cent growth in April, reflecting robust performance across key service sectors. Industrial production also remained firm during the opening months of FY27.
Financial indicators also pointed to continued economic strength. Gross bank credit growth accelerated to a 24-month high of 17.7 per cent in May, reflecting healthy lending activity across sectors. Merchandise exports rose 15.5 per cent in June, although imports grew at a faster pace of 31 per cent, widening the merchandise trade deficit to USD 30.4 billion.
At the same time, EY flagged renewed inflationary pressures. Consumer price inflation increased to 4.4 per cent in June, crossing the Reserve Bank of India's 4 per cent target for the first time in 17 months, driven mainly by higher food and fuel prices. Wholesale price inflation also edged up to 9.9 per cent, reflecting elevated input costs for mineral oils, food articles, basic metals, chemicals, fuel and power.
The report also noted that net foreign direct investment (FDI) recorded an outflow of USD 0.1 billion in May, the first monthly outflow since December 2025, while net foreign portfolio investment (FPI) outflows eased to USD 4.7 billion from USD 7.3 billion in April.
Despite these challenges, EY said resilient domestic demand, expanding services activity, improving public investment and strong credit growth are expected to continue supporting India's economic momentum even as global risks remain elevated.
— ANI
Reader Comments
Love how our services sector is holding strong even with global uncertainties! The PMI numbers are quite encouraging. Just hope the Middle East situation doesn't escalate further and hurt our oil imports. 🤞
Impressive resilience given the global headwinds. As an outsider looking in, India's domestic demand story is really remarkable. The credit growth acceleration to a 24-month high is a strong signal. But I wonder how long they can sustain this with inflation creeping up and FDI turning negative.
EY report says growth is robust but inflation at 4.4% and trade deficit at $30 billion - something doesn't add up. Common man is still feeling the pinch at the petrol pump and grocery store. Let's hope the strong public spending reaches the ground level. Bhai, development ka fayda aam aadmi tak pahunchna chahiye.
The services PMI at 57.4 is fantastic. But one thing that bugs me - FDI outflow despite all the 'Make in India' push. We keep celebrating small victories while ignoring structural issues. Still, credit growth is solid and capex recovery is a good sign. Let's hope this continues. 🇮🇳
Good to see our economy holding up better than many others. The government's fiscal discipline is paying off - surplus on revenue account despite higher spending. My only concern: this strong growth needs to translate into more jobs for youth. Numbers are great, but ground reality sometimes tells a different story.
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