Budget 2025 may take a conservative path, peg nominal growth at 9.5%

The Centre may pencil in a conservative nominal gross domestic product (GDP) growth estimate of 9.5% or thereabouts in the budget for 2025-26, as it expects inflation to slow down next fiscal although economic activity would remain strong, people aware of early deliberations on the matter said.

The nominal GDP, computed at current market prices and captures the effect of inflation in the economy, assumes significance as key indicators, including fiscal deficit and debt-to-GDP ratios, and tax buoyancy, are tied to it. Higher nominal GDP growth makes it a tad easier for the government to realise its deficit targets and vice versa.

A precise estimate would be firmed up after the statistics ministry announces the first advance estimate of GDP growth for the current fiscal in January, they said.

"It's better to keep it (nominal GDP) at a conservative level and beat the targets linked to it than to keep it at a high level, because if you miss it, it has its domino effect. It's in sync with the practice of realistic budget-making in recent years," one of the persons told ET.

The July budget had projected the nominal GDP to grow 10.5% to ₹326.37 lakh crore in the current fiscal. However, given that nominal growth hit 8.9% in the first half of 2024-25, some analysts expect the full-year expansion to be a tad lower than the budgeted level unless economic activity rebounds sharply in the second half and inflation remains elevated at least for the next 2-3 months. Nominal GDP had grown 9.6% last fiscal. Another person said global commodity prices may moderate next fiscal, amid fears of a Chinese slowdown and the prospect of energy prices easing further with Donald Trump at the helm of the US (given his focus on drilling more oil). This would have a salutary effect on domestic inflation as well.

Wholesale price inflation, which has a dominant role in the GDP deflator, stood at 2.1% until October this fiscal even on an unfavourable base, while retail inflation hit 4.8% against 5.4% a year earlier despite the spike to a 14-month high of 6.2% in October alone.

The International Monetary Fund had in October estimated India's real growth for the next fiscal at 6.5%.

While analysts have lowered their real growth projections for 2024-25 after the September quarter growth slipped to a seven-quarter low of 5.4%, they remain sanguine about the 2025-26 prospects.

Madan Sabnavis, chief economist at Bank of Baroda, predicted a 7% real growth rate for the next fiscal, assuming a normal monsoon season. He said fears of a prolonged economic slowdown may have been overblown, as even the September quarter growth deceleration to 5.4% was caused partly by an unfavourable base.

The real growth for 2024-25 should be around the level hit this fiscal, India Ratings chief economist DK Pant said.





(You can now subscribe to our Economic Times WhatsApp channel)