The government's annual economic survey, the first one by new chief economic adviser Arvind Subramanian, has forecast a healthy economy, with rising growth and tempered inflation.
The survey, tabled today in parliament, expects a GDP growth of 8.3 percent in 2015-16. That will put India at the forefront of growing economies in the world, and is almost a full percentage point higher than this year's expected growth of 7.4 percent.
The survey is upbeat, and discusses the possibility of the economy achieving double-digit growth.
"A clear mandate for reform and a benign external environment now is expected to propel India on a double-digit trajectory," the survey said. No major economy, apart from China, has achieved double-digit growth in recent years.
The current account deficit is expected to be 1.3 percent of GDP, and the survey expects the fiscal deficit target of 4.1 percent to be achieved. At the same time, inflation is expected to go down further, at 5-5.5 percent, which will allow the central bank more flexibility in monetary policy.
"The FY15/16 (fiscal) deficit is likely to remain close to -3.6 percent of GDP. Overall, the favourable macro-environment helped by low crude prices, financial market stability, and renewed confidence in the Indian economy provide a good starting point to kick-start the reform process," Radhika Rao, an economist with DBS Singapore, told Reuters.
The government is expected to adhere to financial expenditure limits, and that would help keep the deficit in the target range, the survey said. Higher public investment is expected to be funded through cuts in subsidies for states, higher growth, savings from lower global crude prices and higher disinvestment proceeds.
"The positive for the market is that there is now a clear scope for big bang reforms, with both WPI (wholesale price inflation) and CPI (consumer price inflation) expected to stay under the central bank's target," said Ganti Murthy, head of fixed income at IDBI Asset Management in Mumbai.