Improved growth forecast gives Centre elbow room on deficit

Radhika Merwin BL Research Bureau | Updated on January 31, 2018

Fisc may also gain marginally on a higher base for FY16 and FY17

The Centre has been given a slight head start in achieving its 3.2 per cent fiscal deficit target for FY18.

The CSO in its first revised estimates for FY17, has bumped up the growth figures for FY 17 as well as for FY16. On the one hand, the higher base offers some leeway to revise down the growth estimates for the current FY18 fiscal, which did seem a little stretched, when the CSO recently put out its first advance estimates.

On the other hand, if, in the CSO’s second advance estimate due on February 28, nominal GDP forecast is held steady, then the Centre can gain marginally (by about 2 bps) on the fiscal deficit front.

Not much to make a song and dance about, but it could work out to a meaningful number if the CSO tinkers with the growth numbers too much in the coming months.

In its latest revision, the CSO has tweaked GVA growth numbers substantially for FY16 and FY17. Growth in GVA at basic prices for FY16 has been revised from 7.9 per cent to 8.1 per cent. For FY17, it has been revised more notably, from 6.6 per cent to 7.1 per cent.

On this higher base, the growth for FY18 could be revised all the way down from 6.1 per cent earlier to 5.5 per cent, if the CSO’s absolute GVA figure estimated for FY18 is kept constant.

Similarly, nominal GDP growth forecast at 9.5 per cent for FY18 earlier, has headroom to be moved lower to 9 per cent.

Fisc math

On the other hand, if the CSO’s growth (rate) forecast in its first advance estimates is held or revised upwards, there could be marginal benefit in the fiscal deficit ratio for FY18.

On the higher base of FY16 and FY17 alone, a 9.5 per cent growth in nominal GDP, would reduce the fisc by about 2 bps. Sizeable changes to growth estimates could lead to a more notable gain on the fiscal front.

Published on January 31, 2018

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