Lower FY26 nominal GDP number to raise fiscal deficit ratio marginally

Lower nominal GDP estimates have nudged up FY26 fiscal deficit and debt ratios, implying a steeper consolidation path even as new NSO GDP data revises sectoral weights

The lower nominal gross domestic product (GDP), according to the second advance estimates, has slightly increased the fiscal deficit and debt ratio, and this is expected to necessitate a steeper consolidation path, going forward.

 

Using a nominal GDP of ₹345.47 trillion as the denominator, the fiscal deficit for FY26 would be 10 basis points (bps) higher at 4.5 per cent, and the debt-to-GDP ratio would be around 58 per cent. 

Assuming a 10 per cent growth in the nominal GDP in FY27, the fiscal deficit target for the next financial year would also be marginally higher at 4.46 per cent of GDP against the 4.3 per cent estimated in the Budget. 

“This would also have some bearing on the debt consolidation roadmap, with the debt-to-GDP pegged 1.9 percentage points (pp) higher at 57.5 per cent for FY27. This is against the budgeted target of 55.6 per cent, making the consolidation path into FY31 relatively steeper than previously estimated,” said Aditi Nayar, chief economist, ICRA.

 

The government budgeted for the new fiscal anchor — the ratio of debt to GDP from FY27 onwards—to moderate by only 50 bps to 55.6 per cent in FY27. It was 56.1 per cent achieved in FY26, assuming a growth rate of 10 per cent in nominal GDP.

 

“We do expect growth of 7-7.5 per cent in FY27. Based on the nominal GDP growth rate, we don't expect fiscal numbers to change significantly… The wedge between real and nominal GDP growth rates has come down to just 1 per cent in FY26 and will widen to 3 per cent in FY27,” said Madan Sabnavis, chief economist, Bank of Baroda.

 

The National Statistical Office (NSO) released a new series of GDP and gross value added (GVA) with a base year of 2022-23 on Friday, including changes in the relative weights of output sectors and demand segments.

 

There is also the use of additional and more disaggregated data and better methods for scaling up economic activities of the informal sector and companies not covered by the Ministry of Corporate Affairs (MCA) database.

 

“These changes would improve India’s rating of the NSO data from category ‘C’ to a better category. This is in terms of the IMF framework for assessing the reliability of a country's national income statistics,” said DK Srivastava, chief policy advisor, EY India.

 

Fiscal deficit in Apr-Jan at 63% of BE FY26

 

The government’s fiscal deficit for April-January of FY26 stood at 63 per cent of budget estimates (BE) compared to 74.5 per cent in the corresponding period last year. This is according to the latest Controller General of Accounts data released on Friday.

 

The fiscal deficit eased from ₹11.69 trillion in April-January FY25 to ₹9.8 trillion in April-January FY26, registering a year-on-year (Y-o-Y) decrease of 16 per cent.

 

Capital expenditure (capex) for April-January FY26 was higher at 77 per cent of the BE compared to 74.4 per cent last year.

 

Non-debt capital receipts in the first 11 months of this financial year were at 89 per cent of the BE compared to 49.5 per cent in the corresponding period last year.

 

Net tax revenue stood at 78.3 per cent of BE against 74.4 per cent last year.