The problem with low inflation, Pg 16.

Key Highlights:

• Retail inflation based on the Consumer Price Index (CPI) was 2.07% in August 2025.
• Wholesale Price Index (WPI) inflation showed a 0.52% increase in August 2025.
• India's real GDP growth rose to a five-quarter high of 7.8% in April-June 2025.
• The nominal GDP growth rate was at a three-quarter low of 8.8% [April-June 2025], lower than the government's expectation.
• In the Union Budget 2025-26, the finance ministry assumed India’s nominal GDP would be Rs 357 lakh crore, 10.1% higher than the revised estimate for 2024-25.
• In April-July 2025, the Central government’s gross tax revenue was up just 1% year-on-year, while net tax revenue was down 7.5%.

Detailed Insights:

• Low inflation impacts the government's fiscal arithmetic through the nominal GDP, which is crucial for budget and tax revenue projections.
• The Union Budget for 2025-26 projected an almost 11% rise in the central government’s net tax revenue, based on the assumed nominal GDP growth.
• Weaker price increases and nominal GDP growth have affected government finances, with tax collection growth trailing behind the 2025-26 budget targets.
• The fiscal deficit and Central government debt are measured as a percentage of the nominal GDP; achieving the nominal GDP target is important for meeting these targets.
• A Reserve Bank of India (RBI) study showed private companies saw a 5.5% rise in sales in April-June 2025, with a more rapid 17.6% increase in net profit.
• Despite robust corporate profit margins and large cash reserves, capital expenditure (capex) sentiment remains weak, potentially impacting future growth.

Key Concepts Involved:

• Consumer Price Index (CPI): Measures the average change in prices paid by urban consumers for a basket of goods and services.
• Wholesale Price Index (WPI): Measures the changes in prices of goods at the wholesale level.
• Nominal GDP: The total value of goods and services produced at current prices, without adjusting for inflation.
• Fiscal Deficit: The difference between the government's total revenue and its total expenditure.