 "Budget 2016: Ahead of Union Budget, Government to come out with GDP numbers")
Amid a debate over deferring fiscal consolidation roadmap for 2016-17, the government will later today come out with advance estimates of the gross domestic product (GDP) for the current financial year. The Budget would assume a growth rate on these numbers to come out with various parameters like tax revenues and fiscal deficit.
The Central Statistics Office (CSO) will also be releasing the GDP data for the third quarter of the current financial year.
A declining GDP growth rate in nominal terms has already made difficult the government's task of reining in the fiscal deficit at 3.9% of GDP for 2015-16. If the inflation trajectory remains more or less same, the task to check the deficit at 3.5% of GDP for the next financial year will also remain a challenge.
It should be noted that the government has already deferred the fiscal consolidation roadmap by a year. According to a roadmap, laid down by the then finance minister P Chidambaram, the deficit was to be curtailed at 3.6% of GDP in the current financial year and 3% by 2016-17.
Nominal GDP, assumed to grow 11.5% for the current financial year in the Budget, has grown only 7.4% in the first half of the current financial year. The mid-year economic analysis of 2015-16 projected the nominal GDP to grow by 8.2% in the entire 2015-16.
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The Budget assumed 11.5% growth for 2015-16 over nominal GDP of Rs 126,537,62 crore (advance estimates) for the previous year. That meant nominal GDP of Rs 141,08,945 crore. Fiscal deficit at 3.9% of this GDP turns out to be Rs 5,55,649 crore, according to the Budget Estimates for 2015-16.
However, actual nominal GDP for 2014-15 turned out to be lower at Rs 124,88,205 crore. So, lower growth of 8.2% (projected by the mid-year analysis) would make the growth to be 135,12,238 crore. Fiscal deficit at 3.9% of this GDP means Rs 5,26,977 crore. Thus, the government will have to restrict the deficit by Rs 28,672 crore (Rs 55,649 crore-Rs 4,87,040 crore) more to retain it at 3.9% of GDP.
If one assumes slightly higher growth rate at 8.5% of nominal GDP for 2016-17 than 8.2% projected for the current financial year, then nominal GDP would be Rs 146,60,778 crore for 2017-18. Retaining fiscal deficit at 3.5% of GDP would mean Rs 5,13,127 crore in absolute terms. This means that the government has to tighten its fiscal belt by just over Rs 13,000 crore more.
Even then, there are many who say this is a greater challenge as the seventh pay commission report and one rank one pension (OROP) are to be implemented and the need to have greater public expenditure to perk up the economy.
For instance, a report by Deutsche Bank said the government is likely to meet its fiscal deficit target of 3.9% for the current financial year and is expected to set it at 3.8% of the GDP for the next fiscal.
It said the target of reining in fiscal deficit at 3% of GDP would be deferred by a year more from 2017-18 to 2018-19.
Together with advance estimates, the government would also come out with third quarter GDP data for the current financial year.
India Ratings has projected the economic growth at 7.6% in the October-December quarter of the current financial year — the fastest pace of expansion in five quarters.
“Growth may have ticked higher in third quarter by 7.6%. The growth is likely to get support from a favourable base effect, as gross domestic product (GDP) in third quarter of last financial year grew by 6.6%,” Devendra Pant, Chief Economist, India Ratings said.
In the current financial year, Indian economy grew by 7% in first quarter and 7.4% in second quarter. These figures may also be revised in the data to be released today.
“Domestic demand witnessed during the festival season is expected to support growth in the third quarter, even as global headwinds have had an adverse impact on manufacturing and exports," Pant said.
He added that investment has been muted due to low capacity utilisation in several manufacturing sectors, highly-leveraged balance sheets of infrastructure firms and stretched balance sheets of banks.