GDP data shows govt set to meet fiscal deficit target

NEW DELHI: The latest GDP numbers at current prices will provide cheer to the Centre’s budget team as it works out the final set of numbers for the current fiscal year.

Although the nominal GDP growth was estimated at 8%, slower than the 10.1% assumed at the time of presenting the budget, the latest data released by the National Statistics Office on Wednesday estimated full year GDP at Rs 3,57,13,886 crore, marginally higher than the Centre’s projection of Rs 3,56,97,923 crore.

The Centre had budgeted for a fiscal deficit of Rs 5,23,846 crore, or 4.4% of GDP. Based on the NSO’s first advance estimate, it will be marginally lower, provided govt is able to stick to its receipts and expenditure projections.

While the tax revenue growth has been weak, there is support from higher dividend transfer by RBI to govt. Moreover, in the fiscal year so far, govt has gone slow on revenue expenditure, while strongly pushing capital expenditure.

What complicates matters is the slower growth in nominal GDP due to low inflation that will have a bearing on taxes.

“While the tax revenue growth has been weak, there is support from higher dividend transfer by RBI to govt. Moreover, in the fiscal year so far, govt has gone slow on revenue expenditure, even while strongly pushing the capital expenditure,” added Rajni Sinha, chief economist at CareEdge.

In the last budget, finance minister Nirmala Sitharaman had announced direct tax cuts and yet budgeted to stick to the deficit reduction plan. But the move to reduce GST rates on 375 items is expected to impact collections, both for the Centre and the states.

Sitharaman has, however, stuck to her deficit targets in the post-Covid period, giving analysts hope that this year’s revised estimates will be no different.

“Nominal growth, on the other hand, will be softer at 8% this fiscal compared with 9.8% in fiscal 2025. The gap between real and nominal GDP growth estimates, at 0.6 percentage point, is at its lowest level in the 2011-12 series. The lower nominal GDP growth puts some pressure on deficit targets as these are measured as a percentage of nominal GDP,” ratings agency Crisil said in a note.