Archive · 18 Sep 2025
Low Inflation: A Problem for Government's Finances
Recently, the prices of things have gone up very slowly, which is good for people buying things.
But, this is causing a problem for the government's money.
The government plans its spending and how much tax it will collect based on how much money the economy makes.
If prices don't go up much, the total amount of money the country makes (Nominal GDP) doesn't grow as fast.
Because of this, the government might not collect as much tax as it planned, which can make it harder to pay for things like schools and hospitals.
Retail inflation in August was at 2.07%, and WPI inflation was 0.52%.
Low inflation is beneficial for consumers but poses challenges for government finances.
Nominal GDP growth in April-June was 8.8%, lower than the government's budget estimate.
Government tax revenue growth has slowed due to weak nominal GDP growth.
Low inflation can lead to lower tax revenue than expected, impacting government budgets.
- Who
- Government
- What
- Impact of Low Inflation on Finances and Budget
- When
- August 2024
- Where
- India
- Why
- Low inflation impacts nominal GDP growth, affecting tax collection.
Consumer Perspective
Government Perspective
Impact of Low Inflation
Consumer Perspective
Consumers benefit from lower prices.
Government Perspective
Lower tax collections and potential challenges in meeting budget targets.
- Retail Inflation (August)
- 2.07%
- WPI Inflation (August)
- 0.52%
- Nominal GDP Growth (April-June)
- 8.8%
- Budget Assumption for Nominal GDP Growth
- 10.1%
- Government's Gross Tax Revenue Growth (Apr-Jul)
- 1%
- Government's Net Tax Revenue Growth (Apr-Jul)
- -7.5%
Sources
Mfg, services sector lead robust GDP growth
Will new fiscal pressures cause India's debt control to collapse?
India leans on domestic strengths to withstand global shocks: S&P Global
If you're aggressive & high beta investor, invest in this metal: Jefferies' Chris Wood
Despite global shocks, India's growth story remains intact: S&P Global
India’s IT services firms to grow 6-7 pc in FY27 in AI era: Report
RBI may cut rates again in Dec on easing inflation: Goldman Sachs' Sengupta