Although India may be getting closer to its goal of 6.5 per cent real GDP growth in FY24, experts believe that nominal growth may be lower than anticipated, complicating the fiscal equation and delaying the goal of becoming a $5 trillion economy by another year, according to a report by The Economic Times.

According to experts, muted wholesale inflation may prevent nominal GDP growth from exceeding the 10.5 per cent Union Budget target for this fiscal year.

The Economic Times cited Gaura Sengupta, an economist from IDFC First Bank, who indicated that their projection for nominal GDP growth in FY24 is tracking around 9 per cent with a downside risk. Compared to 9.6 per cent the year before, she forecast wholesale inflation to average at 0.2 per cent for this fiscal year.

As per the data released last week, the wholesale price index (WPI), which makes up 70 per cent of the GDP deflator used to compute nominal GDP, experienced deflation for the fifth consecutive month in August.

Compared to a 1.36 per cent deflation in July, WPI-based inflation dropped by 0.52 per cent in August.

As the base effects diminish, experts claim that WPI will start to trend upward starting in September, but they predict that inflation will remain low for the remainder of the fiscal year.

A rating company called CareEdge expects wholesale inflation to be between 1 per cent and 2 per cent in FY24.

Sengupta stated that tax receipts are showing the effects of the muted nominal growth.

“The impact of the slowdown in nominal GDP growth is already visible with gross tax collection growth slowing to 2.8 per cent YoY in FYTD24 (Financial Year-to-Date) (Apr to Jul), with a decline in corporate tax collections and a slowdown in income tax growth. Even GST tax collections where compliance is improving, a slowdown is seen in nominal growth rates to 11 per cent in FYTD24 (Apr to Aug) from 33 per cent in FYTD23,” The Economic Times quoted Sengupta as saying.

Others claim that low or negative wholesale price increases may prevent that, notwithstanding Sengupta's optimism that the government will be able to achieve its 5.9 per cent fiscal deficit objective with moderate expenditures.

According to Bank of Baroda chief economist Madan Sabnavis, deficit ratios might increase by as much as 0.2 percentage points if nominal growth approaches the real growth rate of 6.5 per cent.

Real GDP growth in the first quarter of FY24 was 7.8 per cent, while nominal GDP growth was just slightly higher at 8 per cent.

The delay in reaching the goal of a $5 trillion economy, according to Sabnavis, is another obstacle.

"This (6.5 per cent nominal growth) will push forward the year when we can hope to touch the $5-trillion mark," The Economic Times quoted Sabnavis as saying.

By 2026–2027, India is expected to surpass Japan as the third-largest economy in the world, according to the IMF, when its economy will reach $5 trillion.

In FY24, Sabnavis projects a nominal GDP growth rate of 8–9 per cent.

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Although India may be getting closer to its goal of 6.5 per cent real GDP growth in FY24, experts believe that nominal growth may be lower than anticipated, complicating the fiscal equation and delaying the goal of becoming a $5 trillion economy by another year, according to a report by The Economic Times.

Although India may be getting closer to its goal of 6.5 per cent real GDP growth in FY24, experts believe that nominal growth may be lower than anticipated, complicating the fiscal equation and delaying the goal of becoming a $5 trillion economy by another year, according to a report by The Economic Times. According to experts, muted wholesale inflation may prevent nominal GDP growth from exceeding the 10.5 per cent Union Budget target for this fiscal year. The Economic Times cited Gaura Sengupta, an economist from IDFC First Bank, who indicated that their projection for nominal GDP growth in FY24 is tracking around 9 per cent with a downside risk. Compared to 9.6 per cent the year before, she forecast wholesale inflation to average at 0.2 per cent for this fiscal year. As per the data released last week, the wholesale price index (WPI), which makes up 70 per cent of the GDP deflator used to compute nominal GDP, experienced deflation for the fifth consecutive month in August. Compared to a 1.36 per cent deflation in July, WPI-based inflation dropped by 0.52 per cent in August. As the base effects diminish, experts claim that WPI will start to trend upward starting in September, but they predict that inflation will remain low for the remainder of the fiscal year. A rating company called CareEdge expects wholesale inflation to be between 1 per cent and 2 per cent in FY24. Sengupta stated that tax receipts are showing the effects of the muted nominal growth. “The impact of the slowdown in nominal GDP growth is already visible with gross tax collection growth slowing to 2.8 per cent YoY in FYTD24 (Financial Year-to-Date) (Apr to Jul), with a decline in corporate tax collections and a slowdown in income tax growth. Even GST tax collections where compliance is improving, a slowdown is seen in nominal growth rates to 11 per cent in FYTD24 (Apr to Aug) from 33 per cent in FYTD23,” The Economic Times quoted Sengupta as saying. Others claim that low or negative wholesale price increases may prevent that, notwithstanding Sengupta's optimism that the government will be able to achieve its 5.9 per cent fiscal deficit objective with moderate expenditures. According to Bank of Baroda chief economist Madan Sabnavis, deficit ratios might increase by as much as 0.2 percentage points if nominal growth approaches the real growth rate of 6.5 per cent. Real GDP growth in the first quarter of FY24 was 7.8 per cent, while nominal GDP growth was just slightly higher at 8 per cent. The delay in reaching the goal of a $5 trillion economy, according to Sabnavis, is another obstacle. "This (6.5 per cent nominal growth) will push forward the year when we can hope to touch the $5-trillion mark," The Economic Times quoted Sabnavis as saying. By 2026–2027, India is expected to surpass Japan as the third-largest economy in the world, according to the IMF, when its economy will reach $5 trillion. In FY24, Sabnavis projects a nominal GDP growth rate of 8–9 per cent. WATCH WION LIVE HERE

As India nears its GDP target, experts worry about subdued nominal growth

India is likely to achieve strong growth over the next decade and will overtake Japan in nominal GDP by 2028, to emerge as the world&#39;s third-largest economy, says a foreign brokerage report.

The country has already overtaken Brazil and Russia to emerge as the second largest BRIC economy after China and is well on track to cross France and Britain to emerge as the world&#39;s fifth largest economy after Germany by 2019.

&quot;We see India crossing Germany and Japan in nominal GDP in dollar term by 2028. This assumes that the Indian economy grows at 10 per cent (in nominal US GDP) in the next decade, well ahead of Japan&#39;s 1.6 per cent,&quot; a Bank of America Merrill Lynch a report said today.

The American brokerage has conservatively projected the country&#39;s real GDP growth at 7 per cent potential.

Last year the economy closed at USD 2.26 trillion. But the report did not quantify the size of the economy by 2028 when it would be the third largest after China and the US.

The report titled, &#39;India 2028: The last BRICK in the Wall&#39;, said falling dependency ratios, financial maturity and increasing incomes and affordability are the three key drivers for the country to stand among the large emerging economies.

&quot;First, falling dependency ratios should raise savings and investment rates. Second, financial maturity, due to financial liberalisation and inclusion, should continue to lower lending rates structurally.

&quot;Finally, increasing incomes and affordability will likely underpin the emergence of mass markets, supporting an expected 7 per cent real GDP growth,&quot; the report said.

It said the dependency ratio (unproductive population in the o-14 and over-65 age group) is slated to fall to 46.2 per cent in 2028 from 52.2 per cent now and 71.7 per cent in 1990. This should sustain the savings rate at 32 per cent of GDP, at the least, in 2028, comparable to 31.4 per cent during 2000-17, up from 20.5 per cent in the 1980s and the 1990s.

A rising savings rate should push the investment rate up to 35 per cent of GDP in 2028 from 32.4 per cent in 2017 and 22.1 per cent in the 1980s and the 1990s. This assumes a sustainable current account deficit of 2-2.5 per cent of GDP.

&quot;This, in turn, should lift growth to 10 per cent from 7.1 per cent last fiscal holding the incremental capital output ratio at current 4.8 levels,&quot; the report said.

The credit to GDP ratio, a proxy for financial maturity, will likely climb to 83 per cent of GDP from 44 per cent (2001-17) and 25 per cent during the 1980s and the 1990s driven by financial extension and inclusion, emergence of financial products and financial market development.

The report expects the country&#39;s growth to be driven by services.

It further said RBI will recoup forex reserves compared to falling import cover. &quot;We continue to expect RBI to recoup forex reserves to guard against contagion, in contrast, to import cover almost halving since 2008. This should contain depreciation to 3 per cent a year over the next 10 years,&quot; the report said.

The brokerage said the country is witnessing the emergence of mass markets powered by rising incomes, on the demand side, as well as economies of scale, on the supply side.

The country has already overtaken Brazil and Russia to emerge as the second largest BRICS economy after China and is well on track to cross France and Britain to emerge as the world's fifth largest economy after Germany by 2019

India is likely to achieve strong growth over the next decade and will overtake Japan in nominal GDP by 2028, to emerge as the world's third-largest economy, says a foreign brokerage report. The country has already overtaken Brazil and Russia to emerge as the second largest BRIC economy after China and is well on track to cross France and Britain to emerge as the world's fifth largest economy after Germany by 2019. "We see India crossing Germany and Japan in nominal GDP in dollar term by 2028. This assumes that the Indian economy grows at 10 per cent (in nominal US GDP) in the next decade, well ahead of Japan's 1.6 per cent," a Bank of America Merrill Lynch a report said today. The American brokerage has conservatively projected the country's real GDP growth at 7 per cent potential. Last year the economy closed at USD 2.26 trillion. But the report did not quantify the size of the economy by 2028 when it would be the third largest after China and the US. The report titled, 'India 2028: The last BRICK in the Wall', said falling dependency ratios, financial maturity and increasing incomes and affordability are the three key drivers for the country to stand among the large emerging economies. "First, falling dependency ratios should raise savings and investment rates. Second, financial maturity, due to financial liberalisation and inclusion, should continue to lower lending rates structurally. "Finally, increasing incomes and affordability will likely underpin the emergence of mass markets, supporting an expected 7 per cent real GDP growth," the report said. It said the dependency ratio (unproductive population in the o-14 and over-65 age group) is slated to fall to 46.2 per cent in 2028 from 52.2 per cent now and 71.7 per cent in 1990. This should sustain the savings rate at 32 per cent of GDP, at the least, in 2028, comparable to 31.4 per cent during 2000-17, up from 20.5 per cent in the 1980s and the 1990s. A rising savings rate should push the investment rate up to 35 per cent of GDP in 2028 from 32.4 per cent in 2017 and 22.1 per cent in the 1980s and the 1990s. This assumes a sustainable current account deficit of 2-2.5 per cent of GDP. "This, in turn, should lift growth to 10 per cent from 7.1 per cent last fiscal holding the incremental capital output ratio at current 4.8 levels," the report said. The credit to GDP ratio, a proxy for financial maturity, will likely climb to 83 per cent of GDP from 44 per cent (2001-17) and 25 per cent during the 1980s and the 1990s driven by financial extension and inclusion, emergence of financial products and financial market development. The report expects the country's growth to be driven by services. It further said RBI will recoup forex reserves compared to falling import cover. "We continue to expect RBI to recoup forex reserves to guard against contagion, in contrast, to import cover almost halving since 2008. This should contain depreciation to 3 per cent a year over the next 10 years," the report said. The brokerage said the country is witnessing the emergence of mass markets powered by rising incomes, on the demand side, as well as economies of scale, on the supply side.

India to overtake Japan, become third-largest economy by 2028

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As India nears its GDP target, experts worry about subdued nominal growth

India to overtake Japan, become third-largest economy by 2028