December 11, 2024
Nominal GDP accounts for inflation and is crucial for determining fiscal deficit, debt-to-GDP ratios, and tax buoyancy
Analysts anticipate nominal GDP growth for FY25 to fall slightly below the budgeted 10.5%, given an 8.9% rise in the first half
Lower global commodity prices in FY26, driven by factors such as a Chinese slowdown, could ease domestic inflation
Experts believe FY25’s real GDP growth may mirror this year’s performance, supported by favourable monsoons and resilient economic fundamentals
According to sources, the central government will likely propose a conservative nominal gross domestic product (GDP) growth estimate of 9.5% in the 2025-26 Union Budget. This cautious approach reflects expectations of easing inflation alongside continued economic resilience.
Nominal GDP, measured at current market prices, is a key metric for fiscal planning as it incorporates inflation and underpins critical indicators such as fiscal deficit and debt-to-GDP ratios. A realistic growth projection enables the government to meet its fiscal targets more effectively, as missing overly ambitious estimates can have cascading effects.
The final projection will be determined after the Statistics Ministry releases the first advance GDP estimate for FY25 in January. Early data suggest nominal GDP growth for the current fiscal may fall short of the budgeted 10.5% target, with a recorded 8.9% growth in the first half. Analysts predict a subdued full-year performance unless economic activity rebounds sharply in the latter half and inflation remains elevated in the coming months.
Looking ahead, moderating global commodity prices—fuelled by concerns over a Chinese slowdown and potential energy policy shifts under a Trump administration in the US—are expected to ease domestic inflationary pressures. Wholesale price inflation, a significant component of GDP deflators, stood at 2.1% in October, while retail inflation averaged 4.8% despite a temporary spike of 6.2%.
Economists remain optimistic about FY26’s growth prospects. Madan Sabnavis, Chief Economist at Bank of Baroda, projects a 7% real GDP growth for FY26, assuming a normal monsoon season. He attributes the September quarter’s weak 5.4% growth to a high base effect and predicts FY25 real growth will align closely with this fiscal’s performance.
India Ratings Chief Economist DK Pant also maintains that the economy remains stable, with strong infrastructure investment and robust service sector growth supporting long-term resilience.
Source: Economic Times