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A recent EY report has highlighted that India must maintain tax buoyancy within the 1.2-1.5 range to achieve a growth rate of 6.5-7%. The report suggested that the government should focus on strengthening revenue mobilisation by increasing the tax-to-GDP ratio from an estimated 12% in FY26 to 14% by FY31. The report further noted that gross tax revenue buoyancy had moderated over the past three years, and maintaining it within the desired range would be crucial for GDP growth. The Indian economy is projected to grow between 6.3-6.8% in the next fiscal, with the current fiscal's growth estimated at 6.4%.
According to a report released by EY recently, India must sustain a tax buoyancy within the range of 1.2-1.5 to attain a growth rate of 6.5-7%. Tax buoyancy, an indicator of how tax revenues grow in relation to GDP, plays a critical role in ensuring fiscal health. The report also indicated that the government may need to enhance revenue mobilisation, particularly by increasing the tax-to-GDP ratio from the estimated 12% in FY26 (Budget Estimates) to 14% by FY31. Advertisement
EY emphasised that India's fiscal strategy should centre on improving tax buoyancy, maintaining prudent expenditure management, and implementing continued structural reforms to ensure sustainable economic expansion. Expenditure management, which involves efficient allocation and utilisation of government funds, is a key component of this strategy.
EY India's Chief Policy Advisor, D K Srivastava, mentioned that the FY26 budget has been strategically designed to balance fiscal consolidation with growth objectives. For India to sustain a medium-term growth trajectory of 6.5-7% and realise its Viksit Bharat vision, it must ensure tax buoyancy remains within the 1.2-1.5 range. Achieving this target would create the necessary fiscal space to expedite infrastructure development, enhance social sector investment, and uphold fiscal discipline.
The EY India Economy Watch report observed that over the past three years, gross tax revenue buoyancy had gradually declined from 1.4 in FY24 to 1.15 in FY25 (Revised Estimates) and is projected to further decrease to 1.07 in FY26 (Budget Estimates). The report stated that maintaining tax buoyancy within the 1.2-1.5 range would support the Indian government in achieving a GDP growth of 6.5-7%.
The Indian economy is expected to grow within a range of 6.3-6.8% in the upcoming fiscal year, while the GDP growth for the current fiscal is estimated to be 6.4%.
Furthermore, the EY report highlighted that the government had reduced its fiscal deficit-to-GDP ratio from 4.1% in FY15 to 3.4% in FY19, with expectations for it to stabilise at 4.4% by FY26. The report suggested that this ratio needs to be systematically reduced to the FRBM-compliant level of 3%.
With the economy projected to grow between 6.3-6.8% in the next fiscal and fiscal deficit targets being progressively aligned with FRBM norms, a strategic approach towards tax policy and fiscal management will be essential in driving sustainable growth.
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