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Informist, Friday, Jan. 24, 2025

 

By Shubham Rana

 

NEW DELHI - The finance ministry is expected to assume nominal GDP growth of 10.5% for 2025-26 (Apr-Mar) in the upcoming Union Budget, scheduled to be presented on Feb. 1, according to an Informist poll of 17 economists. This would be the third full budget in a row in which the key growth figure is assumed to be 10.5% for the government's budget calculations, with the growth in FY24 and FY25 coming in nearly a full percentage point lower in both years.

 

Despite missing the Budget assumption in recent years, economists expect the government to work with a nominal GDP growth figure of 10.5% for the next financial year as the Indian economy is expected to recover some steam after real growth fell to a four-year low of 6.4% in FY25, as per the statistics ministry's first advance estimate. Meanwhile, nominal GDP is estimated to grow 9.7% to INR 324.11 trillion in FY25.

 

"Nominal GDP growth has been in single digits for two consecutive years, averaging 9.7% in FY24-25. We expect it to pick up marginally to 10% in FY26," economists from Standard Chartered Bank said in a report. "If economic activity and the broader macro environment turn out to be more conducive than anticipated, the FY26 fiscal deficit target could be narrower than we currently expect, as has been the case in recent years." Standard Chartered Bank expects the fiscal deficit target for FY26 to be fixed at 4.5% of GDP.

 

The nominal GDP growth assumed in the Budget is crucial as it forms the basis for key numbers for the next year, including those for the fiscal deficit-to-GDP ratio and growth in tax collections.

 

"Assuming a nominal GDP growth of 10.5% in the FY26 Budget and a tax buoyancy of slightly greater than one, we expect gross tax revenue to grow by 11.1% in FY26BE (FY26 Budget Estimate)," ICICI Bank's economists said.

 

Economic growth is seen recovering in FY26 on hope of faster growth in consumption and some recovery in investment activity, particularly from the government, ratings agency ICRA said in a report. The Centre, which has targeted capital expenditure of INR 11.11 trillion for the current financial year, is struggling to meet its estimate, with election-related restrictions hampering spending early in FY25. As per latest data for Apr-Nov, the Centre's capital expenditure stood at INR 5.13 trillion, accounting for just 46.2% of the full-year figure.

 

Higher prices could also boost nominal GDP growth. However, retail inflation is seen cooling in FY26--according to the Reserve Bank of India's official forecast, CPI inflation is set to ease from 4.8% in FY25 to 4.3% in the first half of FY26. Meanwhile, wholesale inflation may average close to 3.0% next year, against 2.2% so far in FY25.

 

Following are the estimates for nominal GDP growth the government may assume for FY26 in the Budget:

 

ORGANISATION	FY26 NOMINAL GDP GROWTH FORECAST
Bank of America	10.5%
Bank of Baroda	10.5%
Barclays	10.5%
CareEdge Ratings	10.3%
HSBC	9.7%
ICICI Bank	10.5%
ICICI Securities Primary Dealership	10.8%
ICRA	10.0%
IDFC FIRST Bank	10.5%
India Ratings and Research	10.2%
Kotak Mahindra Bank	10.5%
Motilal Oswal Fincl Services	10.8%
Nomura	10.3%
Nuvama Institutional Equities	9.5%
QuantEco Research	10.3%
Standard Chartered Bank	10.0%
UBS Securities	10.5%

 

End

 

Edited by Avishek Dutta

 

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