As the government projected a revival of growth, we take a look at the figures that define the Indian economy – GDP growth rate, inflation, fiscal deficit, tax buoyancy.
1 GDP Growth Rate
This is the most important indicator of level of economic activity in a country. Until Friday evening, India’s GDP was expected to grow at 5% in 2019-20, which is the slowest in a decade. However, a downward revision of 70 basis points (one basis point is one hundredth of a percentage point) in the 2018-19 figures means that 2019-20 economic growth is now expected to be 5.7%. The Survey has projected economic growth for 2020-21 to be 6%-6.5%, suggesting that an economic revival is already underway.
2 Inflation
Headline inflation numbers jumped to 7.35% in December 2019, mainly due to a spike in vegetable and pulse prices. However, the Economic Survey argues that there has been a change in inflation dynamics in India, and the non-core component — non-food non-fuel part of the Consumer Price Index (CPI) basket — does not drive inflation trajectory in India.
3 Fiscal Deficit
With economic activity slowing down and the government likely to miss its revenue targets, the fiscal deficit figure for 2019-20 is likely to exceed the Budgetary Estimates of 3.3%. The Economic Survey has suggested that it might be necessary to miss the fiscal deficit target in the interest of promoting growth. Because the latest GDP figures have reduced the 2018-19 GDP figures, the fiscal deficit for 2018-19 could go up compared to earlier figures.
4 Tax buoyancy
With nominal GDP expected to grow at a much slower pace than the budgeted targets (7.75% against 12%), revenue collections will take a hit. A shortfall in nominal GDP is not the only factor which has led to a shortfall in revenue growth though. The govt had calculated a revenue loss of .1.45 lakh crore because of a mid-year corporate tax concession. If the Budget also gives an income tax concession, it could further affect tax buoyancy — the growth in tax revenue per unit increase in GDP. The implied tax buoyancy in today’s budget will be an interesting statistics.
