India needs 1.2-1.5 tax buoyancy to achieve 6.5-7% growth: EY

“India has to maintain a tax buoyancy in the range of 1.2-1.5 to achieve a growth of 6.5-7%,” an EY report said on Wednesday, February 26, 2025.

The report also said that the government may need to strengthen revenue mobilisation, particularly by increasing the tax-to-GDP ratio from the estimated 12% in FY26 (Budget Estimates) to 14% by FY31.

“India’s fiscal strategy must focus on enhancing tax buoyancy, prudent expenditure management, and continued structural reforms to ensure sustainable growth,” EY said.

EY India Chief Policy Advisor D.K. Srivastava said the FY26 budget strategically balances fiscal consolidation with growth imperatives.

“However, for India to achieve a medium-term growth trajectory of 6.5-7.0% and realize its Viksit Bharat vision, it must ensure tax buoyancy remains in the 1.2-1.5 range. This would help create the necessary fiscal room to accelerate infrastructure expansion, enhance social sector spending, and maintain fiscal discipline,” Mr. Srivastava added.

The EY India Economy Watch report noted that over the past three years, gross tax revenue buoyancy has gently moderated, from 1.4 in FY24 to 1.15 in FY25 (RE) and projected to be 1.07 in FY26(BE). “Maintaining tax buoyancy in the 1.2-1.5 range could help the Government of India achieve 6.5-7.0% GDP growth,” the EY Report said.

Indian economy is projected to grow in the range of 6.3-6.8% in the next fiscal. In the current fiscal, the GDP growth is estimated to be 6.4%.

EY report further said that over the past decade, the government has reduced its fiscal deficit to GDP ratio from 4.1% in FY15 to 3.4% in FY19, with the ratio expected to adjust to 4.4% by FY26. It needs to be steadily reduced to the FRBM consistent level of 3%, it added.