How India's slowing nominal GDP growth may skew Budget math

PRAGYA SRIVASTAVA & PAYAL BHATTACHARYA

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India's GDP growth rate for the quarter ended June, which came in at 7.8% in real terms, surpassed all expectations. But the growth in GDP by another measure has economists and policymakers worried: the economic output in nominal terms.

At 8.8%, nominal GDP growth was only one percentage point higher than the real growth rate, reflecting the impact of the ongoing phase of low inflation in the country. This is a drop from 10.8% in the preceding quarter.

The outlook for the coming quarters is bleak due to the expected impact of the US's steep tariffs on India. Economists estimate the nominal growth rate will slide to 7.5-8.0% in the full year FY26, with a real growth rate of 6.0-6.5%.

The statistics ministry released the GDP data on Friday.

Output estimates are based on prevalent price levels in the economy ("nominal"), but some of the growth comes on the back of inflation. So they are adjusted for inflation to derive "real" growth as a better measure-when inflation is low, that adjustment is low, lifting real growth.

However, nominal growth remains crucial as it forms the basis for the government's Budget estimates and has an impact on growth sentiments.