India is expected to peg growth in its nominal gross domestic product (GDP) at around 11% in next week’s annual budget, marking a slowdown from its estimate for the current fiscal year due to the prospect of weak exports, two government officials said.
Nominal GDP growth – which includes inflation and is the benchmark used to estimate tax revenues – could come under pressure from suppressed external demand next year due to a likely recession in the United States, the authorities said. sources, who declined to be named because the discussions are not yet public.
The government expects nominal growth of 15.4% for the current fiscal year ending March 31.
With a nominal GDP of 10.6% to 11%, the growth rate of gross tax collection in India is expected to be around 8% in 2023-24, compared to 14.5% for the current year, because of the base effect, said Gaura Sengupta, an economist at IDFC. First bank.
The finance ministry did not respond to an email and message seeking comment.
“The biggest risk to these estimates is an interest rate hike by the US Federal Reserve, which is expected to tip its economy into recession, hurting Indian exports,” one of the officials told Reuters.
The official added that a decline in exports and a continued increase in imports to support domestic consumption would lead to a widening current account deficit (CAD).
India’s CAD represented 4.4% of GDP in the July-September quarter, up from 2.2% a quarter earlier and 1.3% a year earlier, as rising commodity prices and weak the rupee having widened the trade deficit.
Real GDP growth is expected to be pegged at 6%-6.5% in the 2022-23 economic survey, one of the officials said. The second official said it would be less than 7%.
The Economic Survey is the government’s examination of how the economy has performed over the past year and comes one day before the budget is presented. The budget is expected on February 1.
The survey may warn the government against announcing populist plans ahead of the 2024 national elections, to contain its budget deficit.
India is targeting a budget deficit of 4.5% of GDP by 2025-26. The budget deficit target for the current year is set at 6.4%.
India’s economy has rebounded since the COVID-19 pandemic, but the Russia-Ukraine conflict has triggered inflationary pressures and prompted the country’s central bank to reverse the ultra-loose monetary policy it adopted during the pandemic.
Still, India remains a relative “bright spot” in the global economy, but needs to build on its current strength in services exports and extend it to its job-rich manufacturing exports, the International Monetary Fund has said ( IMF) earlier this month.