India is projected to achieve a real GDP growth rate of 6-7% in the fiscal year 2027, driven by factors such as domestic consumption, interest rate reductions, and public capital spending, as per a recent report. The rating agency ICRA utilized the NSO’s ‘First Advance Estimates’ of nominal GDP for FY26, amounting to Rs 357.1 trillion, indicating an 8.0% growth, and its own projection of Rs 392.0 trillion for FY27, suggesting a nominal GDP growth of about 9.8%.
ICRA anticipates that the government will limit the fiscal deficit to 4.3% of GDP in FY27, down from the Budget Estimate of 4.4% in FY2026, assuming a nominal GDP growth of 9.8%. The report highlights an expected shift in focus in the FY27 Budget from yearly fiscal deficit goals to a medium-term debt consolidation trajectory, especially in light of the forthcoming 16th Finance Commission recommendations.
The report also forecasts a 14% rise in government capital expenditure to Rs 13.1 trillion in FY27, equivalent to 3.3% of GDP. This growth follows a probable surpassing of the capital expenditure target in FY26, with estimated capex at Rs. 11.5 trillion, exceeding the Budget Estimate of Rs 11.2 trillion.
According to the report, the acceleration in capital spending in FY27 is foreseen to take place before fiscal constraints heighten from FY28 onwards, triggered by increased committed expenditure related to salary and pension disbursements following the 8th Central Pay Commission suggestions. Additionally, ICRA predicts that gross tax revenues will expand by approximately 7% in FY27, driven by a direct tax growth of around 11%. Conversely, indirect tax revenues are expected to grow modestly by 2%, primarily due to the impact of GST rate reductions implemented starting September 2025.
