Deutsche Bank expects FY25 fiscal deficit target could be lowered to under 5 per cent of GDP

A faster-than-anticipated pace of fiscal consolidation could pave the way for a sooner-rather-than-later sovereign rating upgrade for India, according toKaushik Das, Chief Economist - India and South Asia, Deutsche Bank. 

“The Central government’s target to bring the fiscal deficit down to 5.1 per cent of GDP in FY25 and further to 4.5 per cent of GDP in FY26 looks more credible now as the FY24 fiscal deficit has finally come in at 5.6 per cent of GDP vs the revised estimate of 5.8 per cent of GDP. Indeed, the FY25 fiscal deficit target could be lowered to under 5 per cent of GDP, in our view, thanks to a larger-than-expected dividend transfer by the RBI to the Government of India,” Das said in a note.

For FY25, Deutsche Bank is forecasting real GDP growth of 6.9 per cent year on year vs 8.2 per cent in FY24, with momentum likely to moderate further to 6.5 per cent in FY26. “We are forecasting real GVA growth to moderate to 6.3 per cent in FY25 (from 7.2 per cent in FY24) and further to 6.2 per cent in FY26. With GDP growth of 8.2 per cent in FY24E, the base will become more challenging for this year’s growth, and hence we keep our growth estimate slightly below 7 per cent at this stage (the RBI’s growth projection is 7 per cent for FY25).

The data revisions of the past year, the GDP deflator issue and the large discrepancies in the GDP component make analysis of the trend growth rate difficult. Consequently, we rely more on the GVA growth trend as well as the momentum of high-frequency growth indicators to inform our view on India’s growth outlook,” Das said.

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