RBI ESINABARD ESISEBI
In one line
Context:
The National Statistics Office (NSO) released the First Advance Estimates (FAE) for India’s national income for the financial year 2024-25, forecasting a 6.4% growth rate.
Key Highlights:
- This is a slowdown compared to the 8.2% growth in 2023-24 and the 6.6% growth projected by the Reserve Bank of India (RBI).
- The economy is estimated to have grown 9.7% in nominal terms from a year ago, having marginally improved over last year’s growth of 9.6%.
Impact on the Fiscal Management of the Government
- Nominal Growth
- The nomination of under-expected nominal growth represents a challenge for the government’s fiscal management.
- Expenditure Reduction
- The government may have to reduce expenditure to maintain the fiscal deficit at 4.9% of GDP for the current year.
- Revenue collection issues are also flagged as tax revenues are coming in below estimates, which could raise questions over the revenue assumptions of the government.
Challenges to Growth in the Medium Term
- Adjustment in the fiscal plans:
- The government has three months left of the ongoing financial year; also, despite the growth rate not coming back in the second half of the year.
- Medium-term growth trajectory:
- For 2025-26 Union Budget, the big test is to formulate a proper plan as to guide the economy along a sustainable growth path with an envisaged higher growth trajectory.
- Government Capital Expenditure:
- Current growth is largely led by higher government capital expenditure, which is budgeted at 3.4% of GDP for the current year.
