India’s Economic Growth Outlook

By Nikunj Ohri

NEW DELHI (Reuters) – India plans to project higher economic growth for the next fiscal year, according to two government officials with direct knowledge of the matter. They noted that fiscal deficit goals are being met and maintained.

It is likely to forecast nominal economic growth of 10.3%-10.5%, which is higher than the 9.7% forecast for the current year ending March, as reported by the government’s statistical department.

This optimistic outlook may alleviate concerns about an economic slowdown that has affected markets since November. The government anticipates that the world’s fifth-largest economy will experience its slowest growth rate in four years for 2024/25.

N.R. Bhanumurthy, director at the Madras School of Economics, indicated that the nominal GDP estimate for the upcoming fiscal year appears realistic. He believes growth will be propelled by government capital spending, agriculture, and a rebound in exports.

Finance Minister Nirmala Sitharaman is expected to propose personal income tax cuts in the budget scheduled for February 1. This aims to stimulate demand among salary earners who have reduced discretionary spending due to weak wage growth and high food inflation.

The anticipated tax cuts should not hinder India’s goal of fiscal deficit reduction, as the government expects this year’s budget gap to be 10 to 20 basis points lower than the predicted 4.9% due to delays in government spending linked to last year’s national election and monsoons.

India will adhere to its objective of reducing the fiscal deficit to below 4.5% in the forthcoming financial year.

The sources were not authorized to speak to the media and requested anonymity. The finance ministry did not respond immediately to an emailed request for comments.

Nominal economic growth combines a country’s real gross domestic product (GDP) with inflation and serves as the basis for estimating a nation’s revenue, expenditure, and deficit.

To stimulate growth, Prime Minister Narendra Modi’s administration has implemented corporate tax cuts, introduced production-linked incentives for manufacturers, and increased government investment in infrastructure.

However, these measures have not sufficiently generated jobs in the world’s most populous nation or led to a significant wage increase for urban salaried workers, who continue to reduce spending due to soaring food prices, particularly for vegetables.

Indian business groups are also advocating for fuel tax reductions, sustained infrastructure spending momentum, and cuts to certain import duties.