Why in the News
The Ministry of Statistics and Programme Implementation released the new GDP series with 2022-23 as base year, lowering nominal GDP by about 3 to 4 percent. This affects fiscal deficit ratios, debt calculations and India’s timeline to become a 4 trillion dollar economy.
What Changed in the New GDP Series
- 2023-24 growth revised down from 9.2% to 7.2%.
- Nominal GDP for 2025-26 reduced by about 3.3%.
- Real GDP now calculated using double deflation method.
- Better data sources such as GST, ASUSE, PLFS integrated.
- Lower nominal GDP means the economy is slightly smaller in rupee terms than previously estimated.
Impact on Fiscal Deficit
Fiscal deficit is calculated as a percentage of GDP.
1. Current Year Impact
- 2025-26 fiscal deficit moves from 4.4% to 4.5%.
- Past years’ ratios also rise slightly due to smaller GDP base.
2. FY27 Target Problem
- Target: 4.3% of GDP
Absolute deficit: Rs 16.96 lakh crore - To achieve this ratio:
- Nominal GDP must grow 13 to 14% next year.
- Budget assumption was only 10% nominal growth.
- This implies either: Higher growth, or Lower borrowing, or Expenditure compression.
Impact on Debt to GDP Ratio
- Debt ratio projected to rise to about 58% in 2025-26.
- Target is 55.6%.
- Lower GDP denominator pushes ratio upward.
- New GDP series makes fiscal consolidation slightly tougher mathematically.
Impact on $4 Trillion Economy Goal
- At exchange rate of about Rs 90.98 per dollar: 2025-26 GDP is around 3.8 trillion dollars.
- If nominal growth is 10% and rupee remains stable: India can cross 4 trillion dollars in 2026-27.
- However:
- Rupee depreciation can delay milestone.
- Dollar GDP depends on both growth and exchange rate.
- Nigeria example shows how currency depreciation can shrink dollar GDP even if domestic output rises.
Broader Implications
- Ratios worsen even without policy slippage.
- Government may need borrowing recalibration.
- Fiscal arithmetic becomes tighter.
- Market expectations on growth become crucial.
Prelims Pointers
- GDP can be measured by production, income and expenditure methods.
- Nominal GDP uses current prices.
- Real GDP adjusts for inflation.
- Fiscal deficit equals total expenditure minus total receipts excluding borrowings.
- Debt to GDP ratio indicates sustainability of public debt.
[2015] With reference to Indian economy, consider the following statements:
Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 |