Devina Mehra: India’s growth looks strong—but does the budget have space for tax cuts and higher spending both?

Subscribe to enjoy similar stories. On the surface, India appears to have the ultimate Goldilocks economy: one of the highest GDP growth rates in the world with historically low inflation—exactly what any government would want. In theory, this should give the government tremendous flexibility and room in the upcoming budget.

However, drill down a little deeper and gaps begin to appear that will result in some furrowed brows. As per the statistics ministry’s first advance estimates for 2025-26, India’s real GDP is estimated to grow at 7.4%, which makes India arguably the world’s fastest growing major economy. However, nominal GDP, or GDP in current rupee terms, is projected to grow only 8%.

This is against a two-decade average of approximately 12%. While the headline GDP number talked about is always the real growth rate (GDP at constant prices), most concrete and measurable numbers in the economy, from corporate profits to tax collections, are tied to nominal GDP growth. As mentioned above, this has been anaemic at 8%.

When the budget was presented last year, the nominal GDP growth rate was estimated at 10% plus. Based on this, corporate tax collections were budgeted to grow at 10.7% and GST at 10.9%. Surprisingly, and this is something I pointed out in this column at the time, in spite of hefty personal tax cuts, the mop-up from these taxes (or ‘non-corporate tax’ as per budget documents) was budgeted to grow at 14.4%.

The only explanation I could come up with was that the finance ministry was expecting hefty inflows from capital market related taxes. The securities transaction tax (STT) was estimated to rise by 40%. As I had said then, “While the regulator may be talking against excess speculation, many including the