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Informist, Tuesday, Jul 23, 2024

--Fin secy: Nominal GDP projection conservative, but not way off 
--Fin secy: Nominal GDP projection slightly conservative 

--Fin secy: Conscious choice to reduce exposure to short-term borrow 
--Fin secy: Cut small saving estimate as money flowing into markets 
--Fin secy: In advanced stage on improving pension system 

NEW DELHI – The government's projection of nominal GDP growth in the current fiscal year is slightly conservative, but not way too off the mark, Finance Secretary T.V. Somanathan said. The Union Budget for 2024-25 (Apr-Mar), presented today in Parliament, pegged the nominal GDP growth for the year at 10.5%. 

"It (nominal GDP growth estimate) is slightly conservative, but I don't think it is way off what is likely... I think the number is reasonable but slightly conservative," Somanathan told the media at the post-Budget press conference. India's nominal GDP grew 9.6% in 2023-24 against the Budget expectation of 10.5%, because of a low GDP deflator.

Nominal GDP is a combination of real GDP growth and GDP deflator. A GDP deflator measures inflation in the prices of goods and services produced in a country, and largely takes into account WPI inflation.

The Economic Survey for 2023-24, presented in Parliament on Monday, projected the real GDP growth for the current fiscal between 6.5% and 7%. The Reserve Bank of India, on the other hand, has projected GDP growth of 7.2% in 2024-25. 

"Nominal GDP of 10.5% could be a combination of 7% growth and 3.5% GDP deflator. So combination of wholesale price (inflation) and consumer price (inflation) could easily be 3.5%. That is a very likely scenario," Somanathan said. "Or it could be 6.5% growth and 4% inflation."

The Budget also cut the small savings collections estimates for the current year to 3.88 trln rupees from 4.24 trln rupees projected in the Interim Budget. This is on account of various reasons, Somanathan said. The attraction for other investments such as the stock markets has gone up, bank deposit rates may also rise, Somanathan added.

The government has also significantly cut its net short-term borrowing, through the issuance of 91-day, 182-day, and 364-day T-bills to (-)500 bln rupees from 500 bln rupees in the Interim Budget. This means the government will net redeem T-bills this year using its cash pile. 

"The fiscal deficit has reduced between the last year and this year, and between Interim Budget and this Budget. That reduction, we have chosen to reduce primarily in the T-bill segment rather than in dated security," Somanathan said. "That is a conscious choice to reduce our exposure to the short-term T-bills."

The government has cut the fiscal deficit for the current year to 4.9% of GDP from 5.1% of GDP projected in the Interim Budget. In absolute terms, the fiscal deficit is pegged at 16.13 trln rupees, down 4.3% from the projection in the Interim Budget. The government ended 2023-24 with a fiscal deficit of 16.54 trln rupees that translates to 5.6% of GDP. 

Shedding more light on the government's other tasks, Somanathan said that the committee for the review of the National Pension System is working to improve the pension system and the work is in an advanced stage. 

In her Budget speech in 2023, Finance Minister Sitharaman had announced setting up of the committee to review the pension system. The committee will come up with a solution to the issue of pensions, Sitharaman had said. The committee was set to study whether changes are required in the existing framework of the National Pension System and to suggest ways to improve pension benefits for central government employees while ensuring fiscal prudence.  End

Reported by Krity Ambey, Priyasmita Dutta, and Sagar Sen

Edited by Namrata Rao

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