India can increase public investment to drive growth without borrowing more, a key government report said on Friday, in an indication that Finance Minister Arun Jaitley will stick to debt targets in his maiden full-year budget on Saturday.
The economic survey, the basis for Jaitley's budget for the fiscal year starting April 1, forecast the economy would grow by 8.1-8.5 per cent under a new calculation method that makes India the world's top-growing big economy. Budget 2015: Complete Coverage
It said a return to the heady days of double-digit economic growth was expected. "India has reached a sweet spot and that there is a scope for Big Bang reforms now," the report said.
"A clear mandate for reform and a benign external environment now is expected to propel India on a double-digit trajectory."
The forecasts mark an acceleration from growth of 7.4 percent in the fiscal year now ending, giving Prime Minister Narendra Modi a chance to commit more funds to investment without resorting to deficit financing.
Modi won election by a landslide last May, but a first interim budget was widely regarded as a flop and the nationalist leader, who has hired a new team of economic advisers, now wants to relaunch his growth and investment agenda.
India can balance the short-term imperative of boosting public investment to revitalise growth with fiscal discipline, the report authored by economist Arvind Subramanian said.
It reiterated that the government would not overshoot its deficit target of 4.1 percent of gross domestic product in the current fiscal year just ending, and stood by a medium-term target of cutting it to 3 percent of GDP.
Inflation is on a declining trend, the report also said, while overhauling of state subsidies would pave the way to rationalise expenditure.