The finance ministry may assume a nominal GDP growth of 10.5 percent for 2024-25 in its interim budget calculations, according to a Moneycontrol poll of 15 economists.
The nominal GDP growth assumption is crucial to Budget calculations. For instance, the absolute fiscal deficit as a percentage of nominal GDP for next year is a key metric. A higher nominal GDP growth number – and, consequently, a higher nominal GDP – can make the fiscal deficit smaller as a percentage.
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"Fiscal consolidation in India has mostly been revenue-driven due to expenditure rigidities. Therefore, the economic growth has a strong bearing on tax collection and, in turn, on fiscal consolidation," India Ratings and Research noted.
With wholesale inflation – which has a strong bearing on nominal GDP growth – expected to keep rising in the coming months after remaining sub-zero for the first seven months of 2023-24, India's growth without adjusting for inflation is seen higher next year.
As per the statistics ministry's first advance estimate of national income for 2023-24, India's nominal GDP is seen growing by 8.9 percent this year to Rs 296.58 lakh crore. The finance ministry had assumed in its calculations in the Union Budget presented on February 1, 2023 that the nominal GDP would grow 10.5 percent this year to Rs 301.75 lakh crore.
| Organisation | Estimate for FY25 Budget Nominal GDP assumption |
| ICRA | 9.5% |
| DBS Bank | 10.0% |
| BofA Securities | 10-10.5% |
| Bank of Baroda | 10-11% |
| Emkay Global Financial Services | 10.5% |
| India Ratings | 10.5% |
| Motilal Oswal Financial Services | 10.5% |
| Nomura | 10.5% |
| CareEdge | 10.7% |
| Kotak Institutional Equities | 10.8% |
| Deutsche Bank | 11.0% |
| IDFC First Bank | 11.0% |
| State Bank of India | 11.0% |
| Barclays | 11.3% |
| Elara Capital | 11.5% |
Economists' expectations of next year's nominal growth are in a fairly wide range of 9.5 percent to 11.5 percent.
Two years of very high nominal growth – thanks to high inflation and a favourable base – in 2021-22 and 2022-23 helped the Centre rapidly bring down its fiscal deficit to an expected 5.9 percent of GDP this year from 9.2 percent in 2020-21. But with the base effect normalising and the key Wholesale Price Index (WPI) inflation so far subdued, nominal growth has come off sharply from 16.1 percent in 2022-23 and 18.4 percent in 2021-22.
This is expected to make the Centre's finances more difficult going ahead considering that its committed expenditure – items such as interest payments, salaries, and pensions – can't really be reduced and the focus on capital expenditure remains.
However, with the real GDP growth beating all estimates, economists see it as a good opportunity to improve its finances faster.
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"We expect the 2024-25 gross fiscal deficit-to-GDP ratio to be around 5.4 percent, with an assumption of nominal GDP of around 10.3 percent," noted economists Madhavi Arora ansd Harshal Patel of Emkay Global Financial Services.
"The government may have to show a sharper pace of consolidation if the 2025-26 goalpost of 4.5 percent is to be met amid debt sustainability. Thus, a higher nominal GDP growth assumption by the government may add a mild buffer to their fiscal accounting as a percentage of GDP," they added.
The Indian government is looking to cut its fiscal deficit to 4.5 percent of GDP by 2025-26.
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