- June 27, 2026
Higher Nominal GDP Growth To Help India Maintain Fiscal Discipline In FY27 Despite Global Risks: EY
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According to the report, the Centre should be able to offset revenue impact of any excise duty cuts through stronger tax collections, although subsidy expenditure may exceed BE.
Looking ahead, EY projected India’s real GDP growth at 6.6-6.8% in FY27, assuming global crude oil prices remain subdued and shipping through the Strait of Hormuz returns to normal.
India’s higher nominal GDP growth in FY27 is expected to strengthen the Centre’s fiscal position by supporting tax collections, helping the government keep its fiscal deficit under control despite an uncertain global environment, according to EY India’s latest Economy Watch report.
The report said that although real economic growth is likely to moderate from FY26 levels due to global headwinds, higher inflation is expected to boost nominal GDP growth, resulting in stronger government revenues.
“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 noted, “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 market prices. Higher nominal growth typically leads to increased tax collections, giving the government greater fiscal room even if real economic growth slows.
According to the report, the Centre should be able to offset the revenue impact of any excise duty cuts through stronger tax collections, although subsidy expenditure may 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 highlighted that the Centre met its revised fiscal deficit target of 4.4% of GDP in FY26, with the fiscal deficit declining to ₹15.2 lakh crore from ₹15.8 lakh crore in FY25.
However, EY pointed out that the growth in the government’s capital expenditure slowed significantly to 1.6% in FY26 from 10.8% in the previous year, stressing the need to revive public investment to sustain economic 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% in FY27, assuming global crude oil prices remain subdued and shipping through the Strait of Hormuz returns to normal.
Under this scenario, the report expects CPI inflation at 4.5%, nominal GDP growth at 12.5%, the fiscal deficit at 4.4% of GDP, and the current account deficit at 1.5% 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.
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