India’s real GDP growth is projected at 6.4 per cent for FY25 and 6.5 per cent for FY26, stated the March edition of EY Economy Watch, highlighting the need to realign fiscal policy to support the country’s journey towards Viksit Bharat. With a rising population and evolving economic structure, EY said, additional investments in education and healthcare may be essential to sustaining long-term growth and improving human capital outcomes. The EY India report maintained that over the next two decades, India may need to gradually increase its general government education and health expenditures, bringing it closer to levels seen in high-income countries.
Here are the key findings for the report:
• Education spending by the government may need to rise to 6.5 per cent of GDP by FY2048 from its current 4.6 per cent, considering India’s young population and growing workforce requirements.
• Government health expenditure may need to increase to 3.8 per cent of GDP by FY2048, compared to 1.1 per cent in 2021, to ensure improved healthcare access and outcomes.
• Low-income states with higher young populations may require additional support through equalization transfers to meet education and healthcare needs.
According to the report, a phased approach to fiscal restructuring can help meet these targets without compromising growth. Increasing the revenue-to-GDP ratio from 21 per cent to 29 per cent over time could provide necessary resources while maintaining fiscal discipline, it added.
DK Srivastava, Chief Policy Advisor, EY India, said, “India’s changing age structure is expected to increase the share of working-age individuals in the total population. If productively employed, this can create a virtuous cycle of growth, employment, savings, and investment. To achieve this, India may need to raise its revenue-to-GDP ratio and gradually increase the share of government spending on health, education, and infrastructure.”
The EY report also explored how equalization transfers can help bridge regional disparities, ensuring that states with lower fiscal capacity receive adequate funding for social sector investments. It said that these transfers may be key to reducing inter-state inequality in access to education and healthcare. “A well-calibrated fiscal strategy that supports human capital development while maintaining fiscal prudence could significantly enhance India’s long-term growth prospects,” it added.