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6 days ago
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Summary
India’s real pace of economic expansion has been pegged at 7.4% for 2025-26 by an early estimate. But nominal growth of just 8% could test this year’s fiscal math—and if the gap remains small, debt reduction would get harder.
The government’s 7.4% first advance estimate of real GDP growth in 2025-26 released on Wednesday offers reassurance that India’s economy is growing robustly. After 2024-25’s 6.5% expansion, this pick-up in pace is noteworthy given the global headwinds we have faced.
The details show that most sectors barring agriculture and utilities, such as services, manufacturing and construction among others, are expected to notch up high single-digit rates.
Our economic picture is thus upbeat. Nominal GDP growth, however, is estimated at 8% in 2025-26, which is significantly below the 10.1% rate assumed for this year’s budget. Since tax collections track nominal growth, they could end up lower than projected, which may put the fiscal deficit target set at 4.4% of GDP at risk.
Tax buoyancy, of course, could outweigh that effect. Low nominal growth reflects low inflation, which can make debt reduction harder to achieve just as the Centre shifts to a debt target next year.
But then again, price stability matters and reducing central debt to 49-51% of GDP by 2030-31 shouldn’t be done by inflating a chunk of it away. If nominal growth stays modest, expenditure hikes for 2026-27 will need some moderation.
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