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Informist, Thursday, Aug 22, 2024

 

--Govt official: FY25 Budget nominal GDP view consciously conservative

--CONTEXT: FY25 Budget pegged nominal GDP at 10.5%

--Govt official: Early data shows FY25 nominal GDP may be 11.5-12.0%

 

By Priyasmita Dutta

 

NEW DELHI – India's nominal GDP growth in the current financial year ending March is likely to be 11.5-12.0%, sharply higher than the Budget estimate of 10.5%, according to senior finance ministry officials. "According to early indicators, nominal GDP for the current fiscal may be around 11.5-12%," one official told Informist.

 

The Budget pegged the nominal GDP growth for 2024-25 at a "conservative" rate of 10.5% "consciously and calculatively" because any upside surprise will be good, the officials said.

 

Nominal GDP is GDP growth not adjusted for inflation. Real GDP growth is calculated by adjusting nominal GDP with GDP deflator. A GDP deflator measures inflation in the prices of goods and services produced in a country, and largely takes into account inflation based on the Wholesale Price Index.

 

In 2023-24 (Apr-Mar), nominal GDP grew 9.6% compared with the Budget estimate of 10.5% due to a low GDP deflator.

 

WPI inflation has averaged 2.3% in the first four months of this financial year compared with (-)2.5% in the corresponding period last year.

 

The Economic Survey for 2023-24 has projected real GDP growth in 2024-25 between 6.5% and 7.0% and the Reserve Bank of India has projected it at 7.2%.

 

"For government's accounting purposes, nominal GDP is often used as a yardstick or a lever for various projections like revenues and a conservative projection helps the government peg what it will definitely achieve," one of the officials said. "Anything over and above will only be beneficial."

 

The Union Budget has projected the government's total tax collections to grow 10.8% to 38.40 trln rupees. This indicates a tax buoyancy of 1.0. Tax buoyancy refers to the change in a country's tax revenue growth with respect to the change in its nominal GDP. A tax buoyancy rate of over one means growth in tax collections is growing faster than nominal GDP growth.

 

"In any way, the tax buoyancy is coming down gradually, which is only natural. In this environment, a conservative nominal GDP growth will only aid growth in collections," another official said.

 

The Interim Budget saw the tax buoyancy moderating to 1.1 in 2024-25 from the revised estimate of 1.4 for the year 2023-24, but the full Budget lowered it further to 1.0.

 

The first advance estimate of nominal GDP growth for 2024-25 will be released in January.

 

Earlier, former finance secretary T.V. Somanathan said that the government's projection of nominal GDP growth in the current fiscal is slightly conservative, but not way too off the mark.

 

In its monetary policy meeting this month, the RBI cut the GDP growth projection for Apr-Jun to 7.1% from 7.3% estimated in June, but retained the full year's growth at 7.2%. The government will detail the GDP growth for Apr-Jun at the end of August.  End

 

Edited by Ashish Shirke

 

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