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LATEST NEWS UPDATES | Fall in India nominal GDP growth in FY24 to challenge fiscal math - Ira Dugal

Fall in India nominal GDP growth in FY24 to challenge fiscal math - Ira Dugal

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published Published on Jan 9, 2023   modified Modified on Jan 10, 2023

Reuters

India's nominal GDP growth is likely to fall in FY 2023-24, hurting tax collections and putting pressure on the federal government to reduce the budget gap by cutting expenses ahead of national elections in 2024.

Nominal GDP growth, which includes inflation, is the benchmark used to estimate tax collections in the upcoming budget to be presented on Feb. 1. It is estimated to be around 15.4% for the current financial year. But at least four leading economists expect nominal GDP growth to come in between 8% and 11% as inflation slows and real GDP growth eases from an estimated 7% this year, when pandemic-related distortions and pent-up demand pushed up growth rates. A lower tax revenue will limit the government's ability to spend and support the economy as the country heads to national elections in 2024. It will also strain efforts to bring down the fiscal deficit towards the medium-term target of 4.5% of GDP by 2025/26.

Deutsche Bank's chief India economist Kaushik Das said he expects nominal GDP growth of 8%-9% in FY24, with inflation and real GDP growth seen declining. As of November 2022, the federal government's net tax collection stood at 12.24 trillion rupees ($148.61 billion), 63% of the annual target. State Bank of India and rating agency ICRA estimate the nominal GDP growth at around 10% for next financial year. This, according to ICRA Chief Economist Aditi Nayar, could translate into a growth of 9.4% in tax collections.

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Ira Dugal, Reuters, Januray 10, 2023, https://www.reuters.com/world/india/fall-india-nominal-gdp-growth-fy24-challenge-fiscal-math-2023-01-09/


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