Tax Reforms And Higher Revenue Spending Can Ramp Up India's GDP Growth Rate To 7 Per Cent In FY26: SBI Report

According to a report by SBI Mutual Fund, India will require a significant policy-driven booster to achieve an economic growth rate of 7 per cent in Financial Year (FY)26, up from the projected 6.3 per cent in FY25 as the Narendra Modi-led government is set to present its first comprehensive budget of its third term,

The report underscores the need for enhanced revenue expenditure and reforms in income tax policies to address India's prevailing demand-side challenges.

While the supply side remains robust—banks are ready to extend credit and corporations are poised to capitalise on opportunities—the economy lacks the necessary demand thrust to unlock its full potential.

"The challenge is that India is supply-side ready where banks can extend credit and corporates can leverage, but an adequate demand thrust is missing. Policy support could help India's growth recover to ~7 per cent in FY26 from an expected 6.3 per cent in FY25," the report noted.

India's second quarter (Q2) GDP growth for FY25, which slowed to 5.4 per cent, marked a seven-quarter low and highlighted concerns about the country's economic trajectory. This was a sharp decline from the 8.1 per cent growth recorded in the same quarter last year and a dip from the 6.7 per cent growth in the preceding quarter. Economists have raised alarms, pointing to the growing urgency for targeted fiscal measures.

The National Statistics Office (NSO), in its first advance estimate for FY25, projected GDP growth at 6.4 per cent, a four-year low and a steep drop from the 8.2 per cent recorded in FY24. The projection also falls short of the Reserve Bank of India's more optimistic forecast of 6.6 per cent for the same period.