Low Inflation Threatens India's Nominal GDP Growth, Budget 2026 Challenges Loom

• India's nominal GDP growth for FY26 is projected to fall below 9% from an expected 10-11%, primarily due to low inflation (3-4%) and stable real GDP growth (6.5-7%).
• While low inflation boosts real incomes for consumers, it poses a challenge for the government by impacting tax collection and overall revenue growth, making fiscal deficit targets harder to achieve.
• Slowing nominal GDP growth limits the government's financial planning, potentially affecting GST and direct tax revenues, and making it difficult to balance infrastructure capex with essential subsidies.
• Budget 2026 may prioritize maintaining capital expenditure and keeping the fiscal deficit below 4.5% of GDP, with a focus on rural demand and consumption schemes.
• Experts warn that lower-than-expected revenue due to slowing nominal GDP could lead to capex cuts, requiring the government to balance fiscal consolidation with growth support.

Why It Matters: Low inflation, while beneficial for consumers, is slowing nominal GDP growth, posing significant revenue challenges for Budget 2026.