Government’s cautious economic growth projections for FY26 amid inflation easing

Mumbai

The government’s economic concerns may persist into 2025-26, despite expectations of softer inflation. The Union Budget for 2025-26 is likely to project nominal GDP growth between 10% and 10.5%, with real GDP growth pegged conservatively at 6.5% to 7%, in line with the current fiscal year. Inflation is anticipated to ease to 3.5% to 4%. Sources suggest that the nominal GDP estimate will be finalized after the release of the first advance estimates of GDP for FY2024-25 on January 7. This estimate will also inform projections for tax revenue, fiscal deficit, and debt-to-GDP ratios, which will be detailed in the February budget. In FY2024-25, the government had projected nominal GDP growth at 10.5% compared to FY2023-24. Economic activity has been slowing, with Q2 GDP growth falling to 5.4%, though a rebound is expected in Q3. Most forecasts predict FY25 growth will be below 7%. Rating agencies like CareEdge expect GDP growth to moderate but remain healthy at 6.5% in FY25, with a slight increase to 6.7% in FY26. S&P Global, however, has lowered its growth projections for the next two years to 6.7% for FY26 and 6.8% for FY27. Barclays India, on the other hand, anticipates a 7.2% growth in 2025, driven by easier monetary conditions and stable demand from both urban and rural sectors.