ANALYSIS-India’s nominal GDP growth plunge in FY24 to defy budget calculations

By Ira Dugal

MUMBAI, January 9 (Reuters)India’s nominal GDP growth is expected to fall in 2023-24, which will hurt tax collection and put pressure on the federal government to close the fiscal gap by cutting spending ahead of the 2024 national elections.

Nominal GDP growth, which includes inflation, is the benchmark used to estimate tax revenue in the next budget to be presented on February 1. It is estimated at approximately 15.4% for the current financial year.

At least four leading economists expect nominal GDP growth to be between 8% and 11% as inflation slows and real GDP growth slows to around 7% this year, when pandemic-related distortions and pent-up demand drove up growth rates.

A decline in tax revenue will limit the government’s ability to spend and support the economy as the country heads towards national elections in 2024. It will also strain efforts to bring the fiscal deficit back towards the target at medium term of 4.5% of GDP by 2025/26.

“Higher nominal GDP growth not only helped lower public debt and fiscal ratios, but also led to credit growth increasing to 16%-17% year-over-year in FY23” , wrote Kaushik Das, Deutsche Bank’s chief economist for India. a note Monday.

Das said he expects nominal GDP growth of 8-9% in FY24, with inflation and real GDP growth falling. Growth of 8-9% would bring this figure closer to the 7.6% nominal growth seen in 2019/20, before the Covid crisis hit.

As of November 2022, the federal government’s net tax collection stood at 12.24 trillion rupees ($148.61 billion), or 63% of the annual target.

The State Bank of India and ratings agency ICRA estimate nominal GDP growth at around 10% for the next fiscal year. According to CIFAR Chief Economist Aditi Nayar, this could translate to a 9.4% growth in tax revenue.

“We are slightly cautious on tax collections next year as we expect weaker growth in excise and customs duty collections,” she said.

Bank of Baroda Chief Economist Madan Sabnavis pegs nominal growth at slightly above 11%-12% but still significantly below this year’s 15.4%.

“Fiscal momentum seen this year due to inflation and pent-up demand will be lacking this year,” Sabnavis said.


The Indian government had forecast nominal GDP growth of 11.1% in the budget for 2022/23, significantly lower than the 15.4% currently estimated by the statistics office in its first advance estimate released on Friday.

According to BofA Global Research, this could mean the federal government’s net tax revenue exceeds budget estimates by 1.15 trillion rupees.

Non-tax revenue including divestment proceeds will however be lower and expenditure will be Rs 1.35 trillion higher.

“Higher-than-expected nominal GDP growth (will help) keep the budget deficit as a percentage of GDP at 6.4%, with downside risks,” he said.

Economists at Kotak Institutional Equities, however, said higher-than-expected nominal GDP growth could have allowed the budget deficit to narrow to 6.1% of GDP, but higher spending will likely mean the deficit will stay at almost 6.4%.

“For FY24, fiscal consolidation is expected to remain limited to 30-40 basis points from the current FY,” said Soumya Kanti Ghosh, chief economist at State Bank of India.

Other economists see the possibility of a faster reduction in the budget deficit next year.

ICRA’s Nayar puts it at 5.8%, while Bank of Baroda’s Sabnavis sees it at 5.75-6% of GDP.

“While the nominal GDP growth rate is expected to be lower than in FY23, greater fiscal buoyancy, a lower subsidy bill and a targeted spending approach should pave the way for a narrowing fiscal deficit” , said BofA Global Research, which also forecasts next year’s deficit at 5.8% of GDP. .

($1 = 82.3650 Indian rupees)

Nominal GDP growth estimated at 15.4% in 2022/23

Budget deficit at 6.4% of GDP despite higher nominal growth

(Reporting by Ira Dugal; Editing by Nivedita Bhattacharjee)

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