India to forecast stronger growth next year while sticking to fiscal deficit goals, sources say

India plans to project higher economic growth for the next fiscal year, two government officials with direct knowledge of the matter said, adding that fiscal deficit goals are being met and kept.

It is likely to forecast nominal economic growth of 10.3%-10.5%, according to one of the officials. That's higher than the forecast of 9.7% for the current year to end-March given by the government's statistical department this month.

The upbeat outlook could help dispel worries about an economic slowdown which have gripped markets since November. The government expects the world's fifth-biggest economy to log its slowest pace of growth in four years for 2024/25.


N.R. Bhanumurthy, director at Madras School of Economics, said the nominal GDP estimate for the next fiscal year looked realistic, adding that he expects growth to be driven by government capital spending, agriculture and a pickup in exports.

Finance Minister Nirmala Sitharaman is expected to cut personal income taxes in her budget which is due to be presented on Feb. 1, hoping to boost demand among millions of salary earners who have been forced to cut discretionary spending due to weak wage growth and high food inflation.

The tax cuts are not expected to affect India's plans to reduce its fiscal deficit, the sources said, adding that the government expects this year's budget gap to come in 10 to 20 basis points lower than an initially predicted 4.9%.

That is partially due to delays in government spending caused by last year's national election and monsoons.

India will also stick to its goal of shrinking the fiscal deficit to below 4.5% in the coming financial year, they said.

The sources were not authorised to talk to media and declined to be identified.

The finance ministry did not immediately respond to an emailed request for comments.

Nominal economic growth is the sum of a country's real gross domestic product (GDP) and inflation. It is used as a base to calculate projections for a country's revenue, expenditure and deficit.

Seeking to boost growth, Prime Minister Narendra Modi's administration has so far cut corporate tax rates, introduced production-linked incentives for manufacturers and increased government spending on infrastructure.

Even so, these measures have not created sufficient jobs in the world's most populous nation or led to a meaningful increase in wages for salaried workers in cities who are cutting back on spending after more than a year of eye-watering increases in food, especially vegetables. India's business groups are also lobbying for cuts to fuel taxes, a maintaining of momentum in infrastructure spending and a reduction in some import duties.