Business Today

Unequal Equation

Though no one is now expecting the government to stick to its fiscal deficit targets, the numbers do make the fiscal situation look worse
twitter-logo Dipak Mondal   New Delhi     Print Edition: November 3, 2019
Unequal Equation

The government's fiscal math seems to be in disarray after various institutions including the Reserve Bank of India (RBI) revised downward their GDP growth rate estimates for 2019/20. While RBI has cut the estimate from 6.9 per cent to 6.1 per cent, rating agency Moody's has lowered the growth estimates to 5.8 per cent in 2019/20. The government's fiscal deficit target of 3.3 per cent of GDP was based on the assumption that the nominal GDP growth would be 12 per cent at Rs 211 lakh crore.

However, with real GDP languishing around 6 per cent and the average inflation around 3-3.5 per cent, all it can expect is a nominal GDP growth rate of 9-9.5 per cent. At this rate, the country's GDP would be Rs 206-207 lakh crore, which means the fiscal deficit in absolute terms should be Rs 6.7 lakh crore (to be 3.3 per cent of GDP) against the budgeted target of Rs 7.04 lakh crore. Though no one is now expecting the government to stick to its fiscal deficit targets, the numbers do make the fiscal situation look worse.

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