India may look at a 7 percent real growth for the next fiscal to aim for a 11 percent nominal GDP, on the back of robust tax buoyancy and high revenue growth in FY24, which would relay a strong message to the policy watchers, experts have said.
“The combination possibly the government will go for is 7 percent real growth, which might give us 11 percent plus nominal GDP growth. That would be a very good message for the policy watchers at large. This year, the tax buoyancy has been pretty robust, particularly in direct tax at close to 1.2. We may get 13.2-13.5 percent growth in gross tax revenues that will enable the government to sustain growth at 7 percent plus in real terms and still bring down the fiscal deficit from 5.9 percent to about 5.2-5.3 percent. That would be a good directional change,” DK Shrivastava, EY India Chief Policy Advisor, said at a Moneycontrol pre-budget panel discussion.
Highlighting the economy's 7 percent-plus growth rate between 2014 and 2019 despite an "insipid" global economic backdrop, the finance ministry in the latest review said it is "eminently possible for the Indian economy to grow in the coming years at a rate above 7 percent", given the strength of the financial sector.
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“In the economic review, the Ministry of Finance is indicating 7 percent growth for FY25 which would be quite ideal under the circumstances because global conditions are posing such a significant challenge. I would like to see inflation at about 4 percent and tax buoyancy slightly higher than one for enough fiscal room to actually show a convincing path of fiscal consolidation,” Shrivastava said.
Analyst view
Dharmakirti Joshi, Chief Economist, Crisil said, “I would like to see government commitment for uplifting the medium term growth trajectory, both in action as well as in their communication. If growth was weak right now, our fiscal problem would have been much bigger. We need to push growth. Redistribution will be easier if we are also able to grow the economy faster.”
India has to grow above 7 percent to grow the size of the cake, which can be redistributed through policies, he said.
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“But in the budget assumptions, we may factor a real GDP growth of around 6.4 percent for the coming fiscal year and nominal growth of 10.5-11 percent, which is a good number to go by. Last year was an unusual situation because WPI had fallen so much that led to the deflator being very small and so the nominal growth was weak. In the coming fiscal, we'll have a different scenario where real growth might be lower, but nominal growth will be higher because WPI inflation will be higher than what it was last year,” Joshi said.
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