FY26 nominal GDP growth may be in the 10-10.5% range

The government’s concerns over slower economic growth may continue in 2025-26 as well, although inflation is seen to soften. The Union Budget 2025-26 accordingly, may peg nominal GDP growth in the range of 10% to 10.5%.

According to sources, the projection for economic growth is likely to be kept at a conservative 6.5% to 7% for FY26, almost in line with that of the current fiscal, but inflation is seen to ease to 3.5% to 4%.

“Keeping all these factors in mind, the nominal GDP growth rate is likely to be pegged somewhere around 10% to 10.5%,” said a person familiar with the development, adding that there remains a fair bit of uncertainty in the external sector as well.

The nominal GDP estimate for FY26 is expected to be firmed up, taking into account the first advance estimates of annual GDP for FY 2024-25 that will be released on January 7. The nominal GDO growth estimate will also then be used for estimating the growth in tax revenue collections as well as other projections, such as the fiscal deficit and debt-to-GDP ratios for the next fiscal year, which will be presented in February.

The Budget 2024-25 had projected nominal GDP in FY 2024-25 to grow by 10.5% over the Provisional Estimates of FY 2023-24. For FY24, India’s nominal GDP growth was pegged at 9.6%.

Economic activities have been slowing down, and GDP growth for the second quarter of the fiscal came in at a lower-than-anticipated 5.4%, although growth is seen to have rebounded in the third quarter of the fiscal. However, most agencies forecast that FY25 growth will be lower than 7%.

CareEdge Ratings recently said it expects GDP growth to moderate but remains healthy at 6.5% in FY25 and 6.7% in FY26. S&P Global ratings has also maintained India’s GDP growth projection at 6.8% for this fiscal but has reduced it for the next two years by 20 basis points to 6.7% for FY26 and 6.8% for FY27.

However, Barclays India in a report has said that it expects growth to rebound in 2025 to 7.2% amidst easier monetary conditions, stable urban demand, and higher rural demand. Risks to growth may come from any further delay in the expected pick-up in private capex, given the likely negative fiscal impulse from further scaling back in government capex, it further said.