Fisc shapes up on GDP numbers

If the advance estimates of national income are anything to go by, the government will be bang on in meeting its deficit reduction targets for 2004-05.

"Nominal gross domestic product (GDP) growth in the current fiscal is expected to be 12.6 per cent as per the advance estimates of national income released by the Central Statistical Organisation (CSO). This is as against the 12.7 per cent nominal growth implicitly assumed in the Budget estimates for 2004-05," said DK Joshi, Senior Economist, Crisil.

So, as long as the finance ministry manages to keep it's fiscal deficit and revenue deficit at a the figures budgeted for, in 2004-05, it will meet the deficit reduction targets set out in the Fiscal Responsibility and Budget Management (FRBM) Act.

The Act specifies that the fiscal deficit should be 4.4 per cent of GDP and revenue deficit at 2.5 per cent of GDP in 2004-05.

In fact, since the figures are reported only upto the first place of decimal""2.5 could mean anything from 2.46 to 2.54, which, the government has some leeway to increase its deficits too.

The higher nominal growth in the current fiscal can be attributed to the higher than expected inflation levels and also, to the higher than expected real GDP growth.

For the current year, inflation is expected to average around 5.5 per cent for the full year, as against the estimate of around 5 per cent in February 2004. On real GDP growth, however, the agricultural growth of 1.1 per cent is widely perceived as surprising.

"Agricultural growth has been a bit over-stated. You could see a downward estimate there at a later stage," said Joshi, adding that the non-agricultural sector had been buoyant for the last three to four years. Barring agriculture, the economy has been growing at around 8 per cent.

There has also been some suspicion of slight overestimation in the manufacturing growth in some quarters. "The manufacturing estimate appears to be on the high side," said BB Bhattacharya, Director, Institute of Economic Growth, on the almost 9 per cent growth reported in the advance estimates of national income for 2004-05.

For the full year, GDP growth, in real terms or at constant (1993-94) prices, at 6.9 per cent, is much higher than the Reserve Bank of India's (RBI's) October 2004 estimate of 6-6.5 per cent.

The RBI had lowered the government's initial implicit real GDP growth estimate of around 7.6 per cent real growth in the Budget for 2004-05.

The advance estimates for GDP at market prices (current prices) for 2004-05 put the figure at Rs 31,08,561 crore as against the Budget estimate of Rs 31,22,886 crore.