India's Fiscal Deficit Expected to Remain Under Control in FY27 Despite Global Uncertainties

India's fiscal deficit is expected to remain under control in FY27, thanks to robust nominal GDP growth driven by higher inflation, according to EY India. This will bolster tax revenues, helping the government manage finances despite potential increases in subsidy spending. While real growth may moderate, a projected nominal GDP growth of around 12.5% in FY27, combining with a real GDP growth of 6.7%, would have a positive impact on fiscal prospects, particularly on tax revenues. The Centre should be able to absorb the revenue impact of any excise duty cuts through higher tax collections, although spending on subsidies could exceed Budget estimates. EY noted that restoring public investment growth is crucial for sustaining growth, desiring a return to the budgeted 11.5% capital expenditure growth. Projecting real GDP growth at 6.6-6.8% in FY27, assuming stable global crude oil prices and normalised shipments through the Strait of Hormuz, EY 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. Recent geopolitical developments, if leading to lower global crude prices, could restore positive momentum to India's growth prospects.