See FY11 GDP growth around 8.5%: Experts

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The 2009 budget estimated the gross domestic product (GDP) for FY09, last year, at Rs 53 lakh crore. For the current year FY10, the budget assumed the nominal GDP will grow at 10.05% to Rs 58 lakh crore (nominal GDP is real GDP plus inflation).

Now, the government has reworked all the past year GDP numbers with a new base year that is 2004-05 instead of the old base year 1999-2000. As per the new base, the FY09 GDP is Rs 55.7 lakh crore and the current years GDP would be Rs 61 lakh crore then the deficit automatically falls to 6.5% of the GDP from 6.8% in the budget estimate. In addition the real GDP growth rate and inflation is higher than that assumed in last year's budget, the real GDP may rise by about 7.5% this year and inflation on an average by 4.5%, so the nominal GDP in the current year is likely to grow by 12% to about Rs 62 lakh crore, then the deficit in the current year dips to 6.4% again with no part being played by the government.

But the new GDP base year and the higher growth rate have an even better impact on the next year; several analysts are assuming a 14% nominal GDP growth in FY11 that is 8% real GDP growth and 6% inflation. At 14% growth, the nominal GDP for FY11 will be Rs 71.2 lakh crore, the Finance Minister has publically agreed to a 5.5% deficit in FY11. Now, 5.5% of Rs 71 lakh crore works out to a deficit of Rs 3.9 lakh crore down from the Rs 4 lakh crore in the current year.

Can the Finance Minister control this deficit number and will the bond market be willing to finance this deficit at reasonable rates? Saumitra Chaudhuri, Member, Planning Commission; Govinda Rao, Director, National Institute of Public Finance and Policy (NIPFP); Amit Mitra, Secretary General, Federation of Indian Chambers of Commerce & Industry (FICCI), and Dr Soumil Chakraborty, Chief Economist, StanChart, discuss.

Below is a verbatim transcript of the exclusive interview on CNBC-TV18. Also watch the accompanying video.
 
Q: Because of the change in the base year from 1999-2000 to 2004-05 we already see a rise in the nominal GDP number for FY09 that is 2008-09, under the circumstances can you tell us what will be the mathematical impact on the fiscal deficit of the current year itself simply because there is a mathematical change in the GDP number?

Rao: Basically, if you have a real growth of 7-7.5% and a price increase of about say 4.5% you will get somewhere about 12-13%. I think that should be the number and according to that, the 2009-10 budget estimate fiscal deficit works out to 6.4% or so.