Nominal GDP growth for FY27 seen at 10-10.5%: Economists

Economists expect the Union Budget to peg FY27 nominal GDP growth at 10-10.5%, aided by rising inflation and a low base, influencing debt and fiscal metrics

The upcoming Union Budget, to be presented on February 1, is likely to assume nominal gross domestic product (GDP) growth between 10 and 10.5 per cent for the financial year 2026-2027 (FY27), a Business Standard compilation of public announcements by some economists and a poll of some others showed. 

The first advance estimates of GDP for FY26, released earlier this month, indicated that the nominal GDP might grow by 8 per cent to ₹357 trillion during the current financial year, compared to 9.8 per cent in FY25. The Ministry of Finance will use this as the base to calculate the nominal GDP for FY27. However, the statistics ministry will release the second advance estimates of GDP for FY26 on February 27 with the new base year of 2022-23, which may change the Budget assumption for nominal GDP growth. 

Nominal GDP — calculated at current market prices — factors in the effect of inflation. It is used as the base to calculate crucial macroeconomic indicators, such as debt-to-GDP ratio, fiscal deficit, and revenue buoyancy among others. 

FY27 will also be the first year when the central government will shift to the debt-to-GDP ratio as the primary fiscal anchor, moving away from the practice of using the fiscal deficit as the operational target. A higher nominal GDP assu­mption makes it easier for the finance mi­n­ister to show a narrower debt-to-GDP ratio and vice-ver­sa. The FY26 nom­inal GDP grow­th is seen at 8 per cent due to a low inflation print. 

“With inflation moving from lower levels, the deflator is expected to be 2.5 to 3 per cent. As a result, the nominal GDP growth rate is projected to be higher for the next financial year,” said Madan Sabnavis, chief economist, Bank of Baroda.

 

Sabnavis expects the nominal GDP to be 10-10.1 per cent in FY27.

 

Experts estimate inflation to move upwards towards 3 per cent in the January to March 2026 as the base effect becomes less potent and indices normalise.

 

Projecting a nominal GDP growth of 10.1 per cent in FY27, a CareEdge analysis said: “The domestic fundamentals remain largely resilient despite a turbulent global economic landscape…With a low base of FY26, CPI inflation is expected to average 4 per cent in FY27.”

 

CPI inflation plunged to a record low of 0.25 per cent in October and has now inched up to 1.33 per cent in December as the food price deflation narrowed and favourable base effects began to wane. QuantEco research economist Vivek Kumar expects the nominal GDP to accelerate to 10.4 per cent in FY27, predominantly due to normalisation of inflation. QuantEco Research said that the correction in food prices has been the primary reason behind the disinflationary trend at the headline level, with GST restructuring becoming an added disinflationary impulse.

 

“Next fiscal, both inflation metrics -- WPI and CPI -- are expected to be in the 3.5-4 per cent range. That is a reason for normalisation which will drive up the nominal GDP growth rate,” Kumar added.