Notwithstanding the current headwinds and concerns over growth, the Centre is likely to remain fairly optimistic about economic prospects in the fiscal year 2023-24.
According to initial projections being discussed by the finance ministry, the Centre could target a nominal GDP growth of about 11-12% in FY24 and expect gross tax collections to rise by 14-16% over FY23 Budget estimates. The projections, once finalised, will be part of the FY24 Budget.
“The estimates are still under discussion but the thought process is that the economy will do better than the current fiscal as inflationary pressures are likely to ease with softening in global commodity prices as well as a more sustained recovery in economic activities,” said a source familiar with the development.
Also Read: Post-festive blues for FMCG firms
The Budget had projected nominal GDP growth in FY23 at 11.1%, but given the elevated inflation, it is expected to be significantly higher at around 16-17%.
The Reserve Bank of India (RBI) has forecast retail inflation at 5.2% in FY24, down from the 6.7% predicted for the current fiscal. Most agencies expect the country’s real GDP growth to fall in FY24 from the FY23 level (IMF from 6.8% to 6.1%, S&P from 7% to 6%, Moody’s from 7% to 4.8% and Nomura from 7% to 5.2%).
However, the finance ministry is also upbeat about the economy and tax collections in the next fiscal. “Even with the lower inflation, it is felt that tax collections will register improved growth as economic activities normalise further post pandemic. Both direct as well as indirect tax mop-up are expected to register a robust growth in 2023-24,” said the source.
Sunil Sinha, principal economist, India Ratings, said, “Inflation would be lower than this fiscal, but at the same time, the overall GDP is also unlikely to be as good as it is expected to be in 2023-24. Assuming that the real GDP is about 5.5-6% in 2023-24, then expecting a nominal GDP of about 12% is realistic.” The agency is yet to finalise its growth estimate for FY24.
The FY23 Budget had pegged direct tax collections at `14.2 trillion and indirect tax nop-up at `13.3 trillion. The finance ministry expects the actual collections to be higher by about `4 trillion this fiscal than the Budget estimate.
The growth in the Budget estimate for FY23 over the revised estimate for FY22 was marginal. Direct and indirect tax receipts are estimated to grow at 13.6% and 5.6%, respectively, in Budget estimate FY23 over their revised estimate in FY22.
The Centre’s net (post-devolution) tax revenue increased by 11.2% between April and October 2022 to `11.7 trillion a year ago.
More clarity on the Budget projections is expected in the coming weeks with the advance tax payment for the December 15 tranche and first advance estimates of GDP in January. The RBI’s monetary policy statement on December 7 will also provide revised estimates on GDP growth and retail inflation.