India's Nominal GDP Slowdown Is Cyclical, Not Structural But Era Of 15% Growth Is Over, Economists Say

India’s nominal GDP growth has settled near the 10% mark over the past decade, significantly lower than the 14-15% pace seen in the pre-2014 years. However, economists argue this moderation should not be mistaken for a structural slowdown in the economy.

Instead, they said the recent weakness reflects a cyclical collapse in inflation and the GDP deflator, even as real GDP data points to a recovery in momentum. The bigger challenge ahead, they caution, lies not in chasing higher headline growth but in ensuring that growth translates into jobs, wages and sustained consumption.

The sharp fall in both consumer inflation, as measured by the Consumer Price Index (CPI), and wholesale inflation, tracked through the Wholesale Price Index (WPI), has mechanically dragged down nominal growth. “You can’t say this is a structural slowdown,” said Gaura Sengupta, IDFC’s First Bank's Chief Economist.

“There was a significant moderation in inflation. WPI inflation even turned negative for a brief period and CPI inflation slowed to historical lows. As a result, the GDP deflator growth fell to less than 1% in the first half of FY26, which is why nominal GDP growth looked weak.”

Sengupta added that the inflation moderation was largely driven by food prices in CPI and commodities in WPI, factors that are inherently cyclical in nature.

“This slowdown is not structural. It is driven by food, crude and commodity prices. With inflation normalising, we are tracking nominal GDP growth closer to 10% next year,” she said, adding that real GDP indicators already show a pickup in economic activity.

Even so, economists broadly agree that India is unlikely to return to the 14–15% nominal GDP growth regime of the past. “The average nominal GDP growth since FY14 has been around 10%, and there is nothing anomalous about that,” said Madhavi Arora, Chief Economist of Emkay Global financial services.

“Lower inflation makes nominal growth look optically weaker, but this is the new normal. Global industrial cycles have cooled and inflation is structurally lower than what it used to be earlier.”

That assessment was echoed by Teresa John, Economist, Nirmal Bang Institutional Equities who said India is transitioning into a structurally lower inflation regime under inflation targeting.

“Even if real GDP grows at 7-8%, adding 4% inflation only gives you nominal GDP growth of around 10-12%. You are unlikely to go back to 14-15% nominal growth,” she said, noting that with WPI inflation often running below CPI, the GDP deflator could remain subdued.

While lower inflation has supported real purchasing power, economists cautioned that prolonged weakness in nominal GDP growth has broader implications for income growth, demand generation and fiscal capacity.

“All fiscal variables tax revenues, corporate earnings and external balances are linked to nominal GDP,” Arora said. “A lower nominal GDP growth rate means these variables need to be recalibrated.”

Sengupta added that the global backdrop has also shifted materially. “During the phase when India saw 14–15% nominal GDP growth, global growth was much stronger and inflation was higher. In a slow global growth environment, getting back to those levels will be very difficult,” she said, adding that a sustained 10–12% nominal growth band is a more realistic medium-term expectation.

On whether the current growth trajectory is sufficient to fully leverage India’s demographic dividend, economists stressed that the composition of growth matters more than the headline number.

“The challenge is not the level of growth, but the employment elasticity of growth,” Sengupta said. “Modern services and technology-driven sectors are growing faster, but they are less labour-intensive. With automation and mechanisation, employment elasticity is declining globally.”

John warned that a 6-7% real GDP growth rate may not be enough to fully absorb India’s expanding workforce. “To fully leverage the demographic dividend, India ideally needs around 8% real GDP growth with moderate inflation, which would translate into at least 12% nominal GDP growth,” she said.

Weak wage growth has emerged as a key missing link in the recovery cycle. “Government CAPEX has focused heavily on infrastructure, which improves long-term productivity but does not immediately translate into wage growth,” John said. “Corporate profitability has improved and balance sheets have deleveraged, but broader wage growth has been muted.”

Sengupta noted early signs of improvement, particularly following recent tax measures. “For the first time in Q2, we saw a pickup in urban wage growth, aided by GST cuts. But for urban consumption to sustain, we need several consecutive quarters of wage growth,” she said, adding that rural consumption has so far led the recovery.

Lastly, on macro signals to watch, economists said tax revenues and credit growth offer better insight than headline money supply numbers. “Money supply is largely driven by RBI actions. Tax collections are a better reflection of underlying growth,” John said.

Sengupta added that money supply growth appears weaker partly due to cash reserve ratio (CRR) cuts, and adjusting for those shows liquidity conditions have actually improved.