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

The EY India Economy Watch report noted that over the past three years, gross tax revenue buoyancy has gently moderated, from 1.4 in 2024 to 1.15 in 2025 and projected to be 1.07 in 2026

New Delhi: India has to maintain a tax buoyancy in the range of 1.2-1.5 to achieve a growth of 6.5-7 per cent, a EY report said on Wednesday.

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 per cent in FY26 (Budget Estimates) to 14 per cent by FY31.

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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 DK 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 per cent 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,” 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 per cent GDP growth,” the EY Report said.

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

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