Government may project nominal GDP growth at 12% for FY25

The Interim Budget 2024-25 is likely to keep a nominal GDP growth estimate of 12% for next fiscal. According to sources, the government expects the economy to grow upwards of 6.5% at close to 7% next fiscal, while average inflation could remain higher at about 4.5% to 5% next fiscal.  

This would be a significant uptick from the nominal GDP growth of 10.5% estimated in the Union Budget 2023-24 for the current fiscal as against 15.4% in 2022-23.  

Sources indicated that the government is a tad more optimistic about growth prospects after GDP growth has been higher than anticipated in the first two quarters of the fiscal, leading to expectations that the economy may do better than anticipated in the full fiscal. The Reserve Bank of India has pegged GDP growth estimate at 7% for the fiscal, revising it upwards from its previous forecast of 6.5%.  

The economy had done grown at a higher than anticipated rate of 7.2% in 2022-23 as against the second advanced estimate of 7%. 

“There is expectation that the economic recovery would sustain well into the next fiscal upwards of 6.5%. Inflation is also likely to remain within the RBI’s upper tolerance limit of 6% but could see some pressures if the global geo political uncertainty continues,” the source indicated.  

The RBI in the recent Monetary Policy Statement has projected retail inflation for the first quarter of 2024-25 at 5.2%; second quarter at 4%; and third quarter at 4.7%, assuming a normal monsoon next year. 

The projections would be firmed up based on the first advance estimate of GDP for 2023-24 that will be released in early January. The Interim Budget would be presented by Union Finance Minister Nirmala Sitharaman on February 1. 

The nominal GDP estimate is an important indicator based on which a number of assumptions in the Budget are made such as tax revenue and fiscal deficit. It is based on the real GDP growth and the GDP deflator, which is a combination of the wholesale price index inflation and retail inflation.