India's higher nominal GDP growth may help contain fiscal pressures despite global risks: EY

New Delhi [India], June 27 (ANI): India's higher nominal GDP growth in FY27 is likely to help the government keep its fiscal deficit under control despite global uncertainties, according to EY India's latest "Economy Watch" report.
The report said that while real economic growth may moderate from FY26 levels amid global headwinds, higher inflation is expected to lift nominal GDP growth, supporting tax collections and helping the Centre manage its finances.
"One important feature of FY27 growth is the likelihood of relatively higher nominal GDP growth as compared to FY26", the report said.
Explaining the impact, EY said, "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 measures the total value of goods and services produced in the economy at current prices. Higher nominal growth generally leads to stronger tax collections, providing the government with more revenue even if real economic growth slows.
According to the monthly macro-fiscal report, the Centre should be able to absorb the revenue impact of any excise duty cuts through higher tax collections, although spending on subsidies 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 noted that the Centre successfully met its revised fiscal deficit target of 4.4 per cent of GDP in FY26, with the fiscal deficit falling to Rs 15.2 lakh crore from Rs 15.8 lakh crore in FY25.
At the same time, EY observed that growth in government capital expenditure slowed sharply to 1.6 per cent in FY26 from 10.8 per cent a year earlier, and said restoring public investment would be important for sustaining growth.
"It is desirable to restore capital expenditure growth and at least achieve the FY27 budgeted growth of 11.5%," the report said.
Looking ahead, EY projected India's real GDP growth at 6.6-6.8 per cent in FY27, assuming global crude oil prices remain lower and shipments through the Strait of Hormuz normalise. Under this scenario, it expects CPI inflation at 4.5 per cent, nominal GDP growth at 12.5 per cent, the fiscal deficit at 4.4 per cent of GDP and the current account deficit at 1.5 per cent of GDP.
"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)