Does the reaction of 2‐hydroxy‐6‐methyl‐5‐nitrocyclohepta‐2,4,6‐trien‐1‐one with NaOH involve ring contraction?
Drawing on the suggestion of @user55119 I propose the mechanism shown below. 

Whether the first intermediate bicyclic [4.1.0] heptanone arises from an intramolecular electrocyclic process or an intramolecular aldol is unclear but either seems possible. Once the highly strained bicyclic [4.1.0] heptanone intermediate is formed, the reaction proceeds with OH- attack on the carbonyl in a process analogous to a Favorskii mechanism here, with the second intermediate anion stabilised by the nitro group which also directs the direction of ring opening. Finally loss of OH- in a manner similar to base-catalysed aldol and driven by re-aromatisation gives the observed product.