India's FY27 Budget: GDP Growth Forecast

• Economists project India's FY27 nominal GDP growth at 10-10.5%.
• FY26 preliminary nominal GDP growth estimated at 8%, revised base year due in Feb.
• Inflation expected to rise to 3% Jan-Mar 2026, impacting GDP calculations.

As India gears up for the Union Budget on February 1, economists are projecting a nominal GDP growth between 10% and 10.5% for the financial year 2026-2027. This projection, based on factors like rising inflation, is vital for understanding India's fiscal health and economic trajectory. Let's delve into the specifics of this forecast and what it signifies for the Indian economy.

GDP Growth Outlook

Economists anticipate a nominal Gross Domestic Product (GDP) growth ranging from 10% to 10.5% for the financial year 2026-2027 (FY27). This assessment is based on public pronouncements by certain economists and the outcomes of a poll. The anticipated nominal GDP growth reflects the effect of inflation and is essential for calculating vital macroeconomic figures. This projection forms the foundation upon which the Ministry of Finance will structure the upcoming Union Budget, emphasizing its significance in shaping economic policies and forecasts for the country. The anticipated growth is influenced by inflationary trends and the base year comparison from previous fiscal periods, suggesting a complex interplay of variables driving the financial landscape.

Base Year Considerations

The first preliminary GDP estimates for FY26, released earlier this month, indicated a potential nominal GDP growth of 8% to reach ₹357 trillion in the current financial year. This figure represents a slight decrease compared to the 9.8% experienced in FY25. The Ministry of Finance will use this data as the foundation for calculating the nominal GDP for FY27. However, the Statistics Ministry is scheduled to release the second preliminary GDP estimates for FY26 on February 27, using the updated base year of 2022-23. This revision may alter the Budget assumptions regarding nominal GDP growth. The continuous adjustments in base years and the release of updated estimates demonstrate the dynamic nature of economic forecasting and the necessity of incorporating the latest data for precise financial planning.

Nominal GDP Explained

Nominal GDP, calculated at current market prices, integrates the impact of inflation into its calculation, providing a comprehensive view of the economy's performance. It is a crucial benchmark used to calculate various essential macroeconomic indicators. These indicators include the debt-to-GDP ratio, which measures a country's debt relative to its economic output; the fiscal deficit, which represents the difference between government spending and revenue; and revenue buoyancy, which indicates how government revenues respond to changes in GDP. These calculations help policymakers understand the overall health of the economy, assess fiscal sustainability, and make informed decisions on monetary and fiscal policies. The significance of nominal GDP underscores its role in informing economic strategies and ensuring financial stability within the country.

Inflationary Pressures Ahead

Experts anticipate that inflation will gradually rise towards 3% during the period from January to March 2026. This upward trend is attributed to the diminishing impact of the base effect and the normalization of indices. The base effect refers to how past inflation rates influence current inflation calculations, and as the effects of the previous periods become less significant, inflation is expected to reflect a more accurate picture of ongoing price changes. The normalization of indices, particularly in areas such as consumer and wholesale price indices, suggests a return to more typical levels after periods of economic fluctuation. These combined forces will influence the nominal GDP, making it crucial for financial planning. This is expected to influence the budgetary provisions and financial strategies for the upcoming fiscal year.