India's growth to 'return to normal' after cash crunch, finance ministry says

NEW DELHI (Reuters) - India's economy is expected to grow by between 6.75 and 7.5 percent in the coming fiscal year, the finance ministry said in its pre-budget Economic Survey on Tuesday, roughly in line with this year's expected 7.1 percent.

Asia's third-largest economy should steady after a hit from Prime Minister Narendra Modi's decision in November to scrap most cash in circulation in a strike against "black money" - untaxed wealth and the proceeds of crime and corruption.

"Economic growth expected to return to normal as new currency notes in required quantities come back into circulation," the finance ministry tweeted, publishing details of the survey.

The survey's forecasts will underpin Finance Minister Arun Jaitley's annual budget on Wednesday, in which he is expected to offer some tax 'sops' to voters to soothe the blow to jobs and business inflicted by so-called demonetisation.

The survey also said government pay rises and muted tax receipts could put pressure on the fiscal deficit in the coming fiscal year.

A sharp rise in prices could also cap the headroom to ease monetary policy, it added.

Senior officials had said that Jaitley may allow the federal deficit to overshoot an earlier target of 3 percent of gross domestic product to create room for public investment.

The report also knocked down a widely-touted proposal to introduce a so-called Universal Basic Income, saying it would cost between 4 and 5 percent of GDP.

It described such a policy as "a powerful idea, but not ripe for implementation".

(Reporting by Douglas Busvine; Editing by Malini Menon and Kim Coghill)