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New Delhi: As India gears up toward Union Budget 2023, the central government led by Prime Minister Narendra Modi is likely to peg the country’s nominal gross domestic product (GDP) growth at around 11 per cent during the budget session, the Reuters reported quoting two government officials. The lower nominal GDP growth projection in the current fiscal has been attributed to the prospect of weak exports.
Nominal GDP growth is the value of all the final goods and services at current market prices. Simply put, it is the GDP calculated at the current market prices. Nominal GDP growth takes into account factors such as inflation, price changes, changing interest rates, and money supply at the time of determining GDP.
The people quoted in the report said that nominal GDP growth could be pressured by suppressed external demand next year due to a likely U.S. recession.
The nominal growth for the fiscal ending March 31 is expected to be 15.4 per cent. India’s gross tax collection growth rate will likely go up to around 8 per cent with a nominal GDP of 10.6 per cent-11 per cent, compared with 14.5 per cent in the current year, due to base effect, said Gaura Sengupta, an economist at IDFC First Bank.
“The biggest risk to these estimates is the interest rate hikes by the U.S. Federal Reserve, which is expected to tip their economy into recession, hurting India’s exports,” one of the officials told Reuters.
A fall in exports and a continued rise in imports to support domestic consumption would lead to a widening current account deficit (CAD), the official added.
India’s CAD was 4.4 per cent of GDP in the July-September quarter, higher than 2.2 per cent a quarter ago and 1.3 per cent a year ago, as rising commodity prices and a weak rupee increased the trade gap. In the Economic Survey of 2022/23, the real GDP growth is expected to be pegged at 6.0 per cent-6.5 per cent, one of the officials told Reuters. The second official said it would be under 7 per cent.
The Economic Survey, which is the government’s review of how the economy fared in the past year, will be published on 31 January 2023, a day ahead of Union Budget 2023-24. The Economic Survey is likely is likely to caution the Modi government from announcing any populist schemes ahead of the national elections in 2024, to contain its fiscal deficit.
India aims to achieve a fiscal deficit of 4.5 per cent of GDP by 2025/26. The current year’s fiscal deficit target is pegged at 6.4 per cent.
Even though the Indian economy has rebounded since the COVID-19 pandemic, the Russia-Ukraine conflict has triggered inflationary pressures and prompted the country’s central bank to reverse the ultra-loose monetary policy it adopted during the pandemic.
Still, India remains a relative “bright spot” in the world economy but needs to leverage its existing strength in services exports and extend it to its job-rich manufacturing exports, the International Monetary Fund (IMF) said earlier this month.
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