Revisions to India's economic output data means Finance Minister Arun Jaitley's upcoming Budget should assume that the economy will grow by at least 8 per cent in the 2015-16 financial year, a government source told Reuters on Tuesday.
The government has changed the way it measures economic activity to conform with international standards, resulting in huge upward revisions to growth figures but a small downward adjustment to the size of the domestic economy.
"In the Budget, we would have to set GDP growth of at least 8 per cent for next financial year as the manufacturing sector has shown a good performance," said the source, who has direct knowledge of Budget planning.
A downward revision in nominal gross domestic product in the 2014-15 fiscal year ending March 31, 2015, would require spending cuts of around Rs 9,100 crore ($1.5 billion) to hit Jaitley's fiscal deficit target of 4.1 per cent of GDP, the source added.
A statistical twist to the way GDP is measured showed on Monday that India clocked faster growth than China in the third quarter.
The new GDP series, calculated based on market prices, has confused economists who say it poorly reflects other indicators that suggest the domestic economy is in a weak recovery - and not the fastest-growing large economy in the world.
Reserve Bank of India Governor Raghuram Rajan has gone on the record to say he does not understand the new numbers.
According to Central Statistics Office (CSO), India clocked 7.5-per cent growth in the October-December period compared to China's 7.3 per cent. Besides, the government also forecast that annual economic growth would accelerate to 7.4 per cent in the financial year ending March 31.
Finance ministry officials are now rushing to plug the new numbers into the Budget that the Finance Minister will unveil on February 28, with the economy now expected to grow by 7.4 per cent in FY15.The new estimate is sharply higher than the Reserve Bank of India's growth projection of around 5.5 per cent under the old method as well as a revised 6.9-per cent growth a year earlier.
"Everyone is happy that India's GDP growth has picked up, but we are worried over slower growth in tax collections," said the source, who requested anonymity as he was not authorised to speak on the record.
With limited scope for boosting tax revenues, Jaitley should step up the pace of sales of state assets and curb spending to hit the government's deficit reduction target in FY16.
"We will have to speed up the sale of shares in cash-rich oil companies that could help the government meet the fiscal deficit target of 3.6 per cent (of GDP) in 2015-16," the source said.
Prime Minister Narendra Modi's government has postponed the proposed sales of stakes in oil companies Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation in recent months, as global oil prices have slipped.