India Targets Reasonable 10.5% Nominal GDP Growth in Budget, DEA Secretary Explains

Economic Affairs Secretary Ajay Seth stated on Wednesday that the Budget has assumed a nominal GDP growth rate of 10.5 per cent. He explained that a higher assumption could have resulted in a larger fiscal deficit.

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Fiscal Prudence and Revenue Assumptions

Seth emphasised the importance of fiscal prudence, noting that realistic or slightly conservative revenue assumptions are necessary. "As far as the current year is concerned, fiscal prudence places the demand on us that we are realistic or a bit conservative in assuming what the potential revenues may be while at the same time provide adequate provisions for productive priorities of the government. That is what this Budget does," he said in a post-Budget interview.

The Budget has made higher provisions by about Rs 90,000 crore compared to the interim Budget. This includes allocations for new schemes. Seth mentioned, "Between the interim Budget to this Budget, there is a higher provision by about Rs 90,000 crore, including for newer schemes."

Conservative Estimates and Fiscal Deficit

Seth explained that estimating a 10.5 per cent nominal growth rate is reasonable. He said, "In that context, 10.5 per cent we feel is a reasonable estimate of nominal growth in the economy. Because any higher assumptions would then require us to assume more revenues to come and if those revenues don't come in, then we ended up with a higher fiscal deficit." He added that conservative estimates help avoid excessive borrowings and related issues.

The government has reduced the fiscal deficit target to 4.9 per cent for the current financial year, down from 5.1 per cent estimated in February's interim Budget. This reduction is attributed to improved revenue collection.

Fiscal Deficit Targets

Despite lowering the current year's target, the Budget retained the fiscal deficit estimate at 4.5 per cent for 2025-26 as announced earlier this year. In absolute terms, this means the fiscal deficit has decreased to Rs 16.14 lakh crore from Rs 16.85 lakh crore estimated previously.

Seth highlighted that conservative estimates are better as they prevent potential problems associated with higher borrowings. "That means more borrowings and it creates its own set of problems," he said.

The approach taken in this Budget aims to balance realistic revenue expectations with adequate funding for government priorities, ensuring fiscal responsibility.