Budget

Nirmala Sitharaman likely to set realistic nominal GDP target at 9.5-10%

GDP
  • Revenue estimates and fiscal deficit targets are also likely to be circumspect as not to face a situation of failing to meet them
  • The PMO, which is closely associated the budget has told North Block not to set over-ambitious tax, fiscal deficit targets

Finance Minister Nirmala Sitharaman is likely to stay conservative about the nominal gross domestic product ( GDP ) growth and set it at 9.5-10% in the FY21 Budget as the time for ‘picking optimistic target’ experiments are over, people familiar with the matter said.

“This year, there will be a realistic assessment of the nominal GDP,” said a source.

Revenue estimates and fiscal deficit targets are also likely to be circumspect as not to face a situation of failing to meet them as the Finance Ministry is already fighting two perceptional issues — transparency in disclosing budget data, and not to set ambitious tax revenue and fiscal deficit targets.

The Prime Minister’s Office (PMO), which is closely associated the budget — even at the micro level — has told North Block not to set over-ambitious tax and fiscal deficit targets.

Over-estimation of the nominal growth rate in an attempt to paint a healthy picture of economy to investors, market and rating agencies — as was partly done last year — gives tax officials ambitious targets to meet through tax demands and raids, causing inconvenience to investors and individuals.

The targets for direct taxes, like income tax and corporate tax, and indirect taxes, such as the goods and services tax (GST), depend on the nominal GDP.

Also, to avoid an embarrassment due to ‘clerical’ errors, North Block and PMO officials are checking broad economic statistics of budgetary documents minutely.

The government had to face a lot of criticisms as the FY20 budget had two nominal GDP growth figures. While Sitharaman gave out 12% nominal growth number, estimating the GDP at current prices at ₹211 trillion, the “medium-term fiscal policy cum fiscal policy strategy statement”, presented with the budget, set the nominal GDP growth at 11%.

“The nominal GDP for 2019-20 is expected to be ₹2,11,00,607 crore, which indicates a growth of 11% over the previous year,” it said. The advance estimate has now projected the nominal GDP growth at 7.5% for FY20.

Since the nominal GDP figures are likely to be low, the tax collections target could be conservative, said people associated with developments.

With the economy still facing slowdown, the first estimates put the real GDP growth at 5% for FY20. This macro-economic data is used for preparing budget estimates for the next financial year.

Sitharaman will present the budget for 2020-21 on 1 February.

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