Economists Warn: Low Nominal Growth Threatens India's Budget Flexibility

• Economists caution India's budget flexibility is constrained by unusually low nominal GDP growth, not weak economic expansion.
• Despite resilient real growth (Morgan Stanley 7.6%, HDFC Bank 7.4% for FY26), subdued nominal growth (8.4% and 8.3% respectively) is a major concern.
• Low nominal growth impacts fiscal deficit calculations, government spending decisions, and tax assumptions for the upcoming Budget.
• A slowdown is anticipated in Q4FY26 due to a high base and expected government expenditure pullback, making the fiscal deficit target challenging.
• Nominal GDP is projected to rebound to around 10% in FY27, supported by a low inflation base effect, which is crucial for corporate revenues.

Why It Matters: India's budget faces constraints from low nominal GDP growth, despite strong real growth.