NEW DELHI, June 27 (ANI) — India’s stronger nominal GDP growth in FY27 is likely to help the government manage its fiscal deficit even amid global uncertainties, according to EY India’s latest Economy Watch report.
The report noted that while real economic growth may moderate from FY26 levels due to external headwinds, higher inflation is expected to boost nominal GDP growth, supporting tax revenues and strengthening the Centre’s fiscal position.
“One important feature of FY27 growth is the likelihood of relatively higher nominal GDP growth as compared to FY26,” the report said. It added, “Combining this with a real GDP growth of 6.7%, we may have a nominal growth of about 12.5% in FY27. This would have a positive impact on fiscal prospects, particularly on tax revenues.”
Nominal GDP reflects the total value of goods and services at current prices. Higher nominal growth typically leads to stronger tax collections, even if real growth slows, thereby providing governments with greater fiscal space.
According to the report, the Centre is expected to absorb any revenue impact from potential excise duty cuts through improved tax collections, though subsidy spending could exceed Budget estimates.
“GoI should be able to realise its estimates of tax revenues, absorbing the adverse revenue impact of any excise duty cuts. On the expenditure side, however, subsidies may be higher than budgeted. We expect the FY27 budgeted fiscal deficit at 4.3% of GDP to be either realised or marginally exceeded,” EY said.
The report also highlighted that India successfully met its revised FY26 fiscal deficit target of 4.4% of GDP, with the deficit declining to ₹15.2 lakh crore from ₹15.8 lakh crore in FY25.
However, it flagged a slowdown in government capital expenditure growth, which fell sharply to 1.6% in FY26 from 10.8% a year earlier, stressing the need to revive public investment to sustain momentum.
“It is desirable to restore capital expenditure growth and at least achieve the FY27 budgeted growth of 11.5%,” the report added.
Looking ahead, EY projected India’s real GDP growth at 6.6–6.8% in FY27, assuming lower global crude oil prices and normalisation of shipments through the Strait of Hormuz. It expects CPI inflation at 4.5%, nominal GDP growth at 12.5%, a fiscal deficit of 4.4% of GDP, and a current account deficit of 1.5%.
“Considering the recent geopolitical developments, if global crude prices settle at relatively lower levels and shipments through the Strait of Hormuz normalise, the positive momentum of India’s growth prospects is likely to be restored,” the report said. (ANI)
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