Nominal GDP growth may miss FY26 target on soft inflation: CEA V Anantha Nageswaran

Given the expectation of benign inflation, there may be a shortfall in nominal GDP growth compared to the Budget estimate of 10.1% for the current financial year, Chief Economic Adviser V Anantha Nageswaran said.

He expressed optimism about meeting the real GDP growth target of 6.3-6.8% for the current fiscal year despite the US imposing a steep 50% tariff on Indian shipments.

Nominal GDP includes changes in prices caused by inflation, reflecting the impact of rising overall price levels, while real GDP is an inflation-adjusted measure that evaluates the value of all goods and services produced in a country during a specific year.

Inflation is expected to be low on account of an estimated good kharif harvest and a reduction in prices of around 400 items after landmark GST reforms were approved recently by the GST Council headed by Finance Minister Nirmala Sitharaman.

"Some shortfall in nominal GDP growth may be there. I think there is a higher chance of that happening. However, what is encouraging to me is that the nominal GDP growth number at 8.8% for the first quarter was better than what many had feared that it would be, somewhere between 8 and 8.3 or 8.5%," he told PTI.

"So, I think as the effects of the GST relief and the higher disposable income coming from lower inflation, from the direct tax relief provided in the February Budget, as they all kick in and boost household and domestic consumption in general, some pricing power may return, but overall inflation will remain contained."

Nominal GDP growth may not fall too far short of the assumed number in the Budget of around 10.1% for the full financial year FY26, he added.

About the impact of GST reforms on GDP, Nageswaran said, "While it will be difficult to quantify it at this point, ultimately much will depend on how the consumers respond and whether it will be offset by any uncertainty related to external trade, etc."

But given the fact that this is a fairly radical overhaul of the GST structure itself, reducing four rates to two and also doing many other process simplifications, he said the impact on the economy will be fairly substantial, not just in terms of Business to Consumer (B2C), but also in terms of Business to Business (B2B) transactions.