New Delhi: The finance ministry may assume a much higher nominal gross domestic product (GDP) growth rate—around 12%—for 2018-19, which may help it project a rosier fiscal deficit number in the budget to be presented on 1 February.
The figure compares with a nominal GDP growth rate of 9.5% estimated by the Central Statistics Office (CSO) for 2017-18.
Nominal GDP, which is GDP evaluated at current market prices and factors in the effect of inflation, is used as the base to calculate key fiscal indicators such as the fiscal deficit, revenue deficit and debt-to-GDP ratio that are used to gauge fiscal health.
“Nominal GDP growth may be assumed close to 12% for 2018-19 in the budget. The Economic Survey may project real GDP growth to be in the range of 6.75-7.75%,” a senior government official said on condition of anonymity.
While the World Bank has estimated India’s economic growth to accelerate to 7.3% in 2018-19, making it the fastest growing major economy, from 6.5% in the year ending 31 March, the International Monetary Fund expects growth to pick up to 7.4% in the same period.
Finance minister Arun Jaitley assumed nominal GDP growth of 11.75% for the 2017-18 fiscal year in his last budget. However, estimates put out by the Central Statistics Office showed nominal GDP may grow only by 9.5% during the year.
The lower-than-anticipated nominal GDP growth will lead to “marginal slippage” in the fiscal deficit target for 2017-18—from 3.2% of GDP estimated in the budget to 3.29%—assuming the government borrows what it budgeted for the year, said T.C.A. Anant, chief statistician of India.
Since the government has increased its spending through supplementary demands for grants and has communicated that it may borrow Rs50,000 crore more by 31 March, the actual fiscal slippage could be more.
Indirect tax revenue has taken a hit as collections under the goods and services tax (GST) have been less than anticipated. This may also make it difficult for the finance minister to stick to his fiscal consolidation roadmap of bringing down the fiscal deficit to 3% of GDP by 2018-19, committed in last year’s budget. This will be the last full budget of the National Democratic Alliance government before the 2019 general election.
The finance ministry has signalled that it may defer implementing the new fiscal consolidation roadmap recommended by the N.K. Singh committee by two years after it tasked the 15th Finance Commission to be chaired by Singh to dwell on the matter.
The Committee’s recommendations on fiscal discipline were supposed to come into force in the next fiscal year starting April; the 15th Finance Commission’s recommendations will be implemented starting April 2020.
Jaitley has hinted at a recalibration of the fiscal consolidation roadmap. “No pause (on fiscal consolidation) but challenges arising from structural reforms… could change the glide path,” Jaitley said at the annual Asia-Pacific summit organized by Morgan Stanley in Singapore in November.
The government may marginally breach the fiscal deficit target in 2017-18, but will likely stick to the 3% of GDP target in the next financial year to maintain its record of fiscal consolidation throughout its tenure, EY India chief policy adviser D.K. Srivastava said
“Assuming a higher nominal GDP growth may certainly help. Nominal GDP growth anywhere in the range of 11.5-12% for next fiscal looks feasible,” he added.livemint