The upcoming Union Budget may peg India’s nominal GDP growth in the next financial year at 10.4%, higher than 9.7% projected for FY25, according to an FE poll of 16 economists.
A 10.4% nominal GDP growth is sufficient for the government to peg the FY26 fiscal deficit target, as a percentage of GDP, below 4.5%, they reckon.
Most economists say the nominal GDP growth in FY26 is seen picking up mainly due to rise in inflation, rather than real GDP expansion. “Higher WPI inflation next year will predominantly lift the nominal growth,” said Vivek Kumar, economist, QuantEco Research.
Kumar expects WPI inflation to rise to 3.5% in FY26 from 2.5% this year. In the first nine months of FY25, WPI inflation has averaged 2.2%.
Indranil Pan, chief economist, Yes Bank expects nominal GDP growth to come in at 9.5%, due to lower inflation projections. Pan expects real GDP growth at 6.6% in FY26 and deflator at 2.9%.
The Budget for FY25 had pegged the country’s nominal GDP growth at 10.5%, but a forecast of 9.7%–made by the National Statistical Office (NSO) in its first advance estimates–is largely due to the larger-than-expected slowdown in real GDP growth, say economists.
The NSO has projected real GDP growth to ease to 6.4% in FY25 from 8.2% in FY24, mainly due to a decline in manufacturing activity and capital spending by the government.
In the next fiscal year, normalisation of nominal GDP, higher revenue growth following revival in consumption, and rationalisation of subsidies will give the government much needed fiscal room to lower deficit levels, say economists.
“Notwithstanding the growth slowdown in FY25 and the likely minor growth improvement in FY26, Ind-Ra expects the government to adhere to its fiscal consolidation roadmap,” said DK Pant, chief economist, India Ratings and Research.
“We believe the government may go for a fiscal deficit target of below 4.5% in FY26,” he added.
The fiscal deficit in FY25 is also likely to be slightly lower than 4.9% pegged in the Budget, in the backdrop of lower-than-projected capital expenditure by the Centre. Analysts expect the capital spending to fall short of the Budget target by around Rs 1-1.1 lakh crore, in FY25.
Analysts say that over the coming three-to-four financial years, the fiscal deficit will have to reduce gradually to a level of 3-3.5% of GDP, if the government intends to bring down the central government debt to 50-51% of the GDP by 2029-30. “This projection is based on the assumption that nominal GDP growth averages close to 10.5% over FY27-FY30,” said HDFC Bank economists in a report