FY24 fiscal deficit seen at 5.9% even if nominal GDP misses Budget assumption: Official

FY24 fiscal deficit seen at 5.9% even if nominal GDP misses Budget assumption: Official

Subject :Economy

Section: National Income

Details:

• Concerns have risen about nominal GDP growth not meeting the Budget assumption of 10.5 per cent as wholesale inflation has been negative for seven consecutive months.
• The Centre is confident of meeting its fiscal deficit target of 5.9 per cent of the Gross Domestic Product (GDP) for financial year 2023-24 even if there is any variation in nominal GDP growth as the tax revenue trend is comfortable so far, a senior government official said Wednesday. The government is not looking at any curbs on spending, with some reallocation of savings expected to happen as it looks towards additional allocation for existing or new schemes in the supplementary demands for grants in the upcoming Parliament session.
• Concerns have risen about nominal GDP growth not meeting the Budget assumption of 10.5 per cent as wholesale inflation has been negative for seven consecutive months. Some estimates have pegged the nominal GDP growth to be around 9 per cent which could result in a lower GDP deflator as it is primarily made of the Wholesale Price Index (WPI). The fiscal slippage risks arise from the fact that the government’s fiscal deficit target of 5.9 per cent is calculated as a percentage of the GDP. The latest print for WPI inflation rate unexpectedly fell to (-) 0.52 per cent in October, data released on November 14 showed.

Real v/s Nominal GDP

The nominal GDP is the value of all the final goods and services that an economy produced during a given year. It is calculated by using the prices that are current in the year in which the output is produced. In economics, a nominal value is expressed in monetary terms.

For example, a nominal value can change due to shifts in quantity and price. The nominal GDP takes into account all of the changes that occurred for all goods and services produced during a given year. If prices change from one period to the next and the output does not change, the nominal GDP would change even though the output remained constant. It is also called GDP at current prices.

The real GDP is the total value of all of the final goods and services that an economy produces during a given year, accounting for inflation and deflation. It is calculated using the prices of a selected base year. To calculate Real GDP, you must determine how much GDP has been changed by inflation since the base year, and divide out the inflation each year. Real GDP, therefore, accounts for the fact that if prices change but output doesn’t, nominal GDP would change.

In economics, real value is not influenced by changes in price, it is only impacted by changes in quantity. Real values measure the purchasing power net of any price changes over time. The real GDP determines the purchasing power net of price changes for a given year. Real GDP accounts for inflation and deflation. It transforms the money-value measure, nominal GDP, into an index for the quantity of total output. It is also called GDP at constant price

Real GDP= Nominal GDP/Price level in base year *100