Can you expect nominal GDP growth of 10% in the next fiscal year?
New Delhi: In the interim budget to be presented on February 1 for the financial year 24-2025, the growth rate of nominal gross domestic product (GDP) is likely to be kept at 10 to 10.5 percent, while the National Statistics Office has projected 8.9 percent for the current financial year. Nominal GDP growth is estimated. “We were waiting for the first advance estimate of GDP data for FY 2024,” a senior government official said on condition of anonymity. We will finalize the nominal GDP growth projections in the interim Budget for FY 2025 in the next few days. Calculation of data shows that nominal GDP growth for FY 2025 may be in the range of 10 to 10.5 percent.
Nominal GDP is calculated at current market prices and is used as the basis for calculating important macroeconomic indicators such as fiscal deficit, revenue deficit, and debt-GDP ratio.
Higher nominal GDP estimates make it easier for the Finance Minister to show a lower fiscal deficit, while lower nominal GDP growth means the fiscal deficit is expected to increase. CRISIL Chief Economist DK Joshi said, ‘The projection of 10.5 percent nominal GDP growth for FY2025 would not be ambitious as the wholesale price index-based inflation has turned positive and has shown a trend of 10.5 percent growth in recent times. ‘
Due to the softening of oil and commodity prices in the international market, wholesale inflation remained in deflationary territory for 7 consecutive months till October 2022. Wholesale inflation turned positive at 0.26 percent in November mainly due to a rise in vegetable prices.
Real GDP is calculated by subtracting the GDP deflator from nominal GDP. The GDP deflator is a weighted average of wholesale inflation and consumer price index-based retail inflation rates, with wholesale inflation having a higher weight. Retail inflation remains high in the current financial year, but due to low wholesale inflation, nominal GDP growth is expected to decline to 8.9 percent in the fiscal year 2024, whereas it was estimated to be 10.5 percent in the budget.
Madan Sabnavis, Chief Economist of the Bank of Baroda, said that nominal GDP growth next year could be around 10 percent. He said, ‘Growth remained soft in FY 2024 due to low deflators. Normalization and base effect will justify this figure while preparing the budget. We expect real GDP growth to be 6.75 to 6.8 percent in FY 2025.
The International Monetary Fund (IMF) in its recent report has estimated India’s nominal GDP growth to be 10.6 percent and real GDP growth to be 6.3 percent for the financial year 2025.
ICRA Chief Economist Aditi Nair said that retail inflation will moderate next year but wholesale inflation may accelerate. He said that as a result, nominal GDP growth may increase to 9.5 percent in the financial year 2025.