Finance ministry likely to assume 12% nominal GDP growth rate for 2018-19

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 ₹50,000 crore more by March 31, 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.