Revealed: The growth, deficit assumptions behind the next budget
₹330 trillion. In FY24, nominal GDP size was ₹296.6 trillion, as per the first advance estimate released in December. An email sent to a finance ministry spokesperson on Friday seeking comment was unanswered till press time.
Nominal GDP refers to the total value of all goods and services produced in a fiscal year, whereas real GDP gives the same value by adjusting for inflation (price rise), with the help of the GDP deflator. The likely budget assumption of 11.5% nominal GDP growth in FY25 is the most ambitious projection since the 14.4% expansion projected in the FY22 budget for the year, in which the economy rebounded from a pandemic-induced contraction. Such growth assumptions do not always pan out accurately, but are necessary in the context of planning fiscal policy and budgetary allocations.
In FY24, nominal GDP growth of 10.5% was assumed in the 2023 budget, but the first advance estimate released in December showed a nominal GDP growth rate of 8.9%. That has happened largely because wholesale price index (WPI)-based inflation remained in the negative zone in April-December. In comparison, India’s nominal GDP expanded 16.1% in FY23, against that year’s budgetary assumption of 11.1%.
Meanwhile, finance minister Nirmala Sitharaman’s budget speech is expected to send out a clear signal about the government’s commitment to reduce the fiscal deficit to 4.5% of GDP by FY26. That would require a reduction of 1.4 percentage points in two years, from the 5.9% fiscal deficit targeted for FY24. “If we have to get to the goal of reducing fiscal deficit to 4.5% of GDP, it is difficult to reduce it by more than 70 basis points in a year, keeping in mind the (expected) growth of the denominator (nominal GDP)," said the person
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