Chief Economic Advisor V Anantha Nageswaran on Thursday said India’s gross domestic product (GDP) growth momentum will continue in the December quarter with the economy likely comfortably growing at 6.5% in the current financial year.
Strong tax collection suggests the economy might be doing better than what is being currently measured, Nageswaran said. “We might be understating India’s growth rather than overstating it,” he said.
The economy maintained momentum in the July-September quarter of FY24 with GDP growth at 7.6% following a 7.8% growth in the April-June quarter. The growth was much higher than expected, mainly driven by investments and government consumption.
The tax revenue growth so far in the current fiscal is 16.3%, while the nominal GDP growth is 8.6%. The tax buoyancy works out to be 1.9.
“It is a theoretical possibility that when you have a tax buoyancy which is as high as 1.9 or close to 2, which is historically unprecedented, then it is quite possible that we are not measuring the economy’s underlying momentum and activity and dynamism as we should be,” Nageswaran said.
“We will keep the GDP growth estimate at 6.5% but we are more comfortable (with the projection) than before. We need to work out the impact of second-quarter numbers on full fiscal. The momentum of economic growth will continue in the third quarter as well,” Nageswaran added.
Contrary to some opinions that the economy’s growth numbers are being overstated, the CEA said, “all said and done GDP is an estimate. These are cash flow statements put out by companies. And if this number is growing at 16.3% in the first half when the nominal GDP of the economy is growing at 8.6%, and given that these kinds of buoyancy numbers have not been seen in a very, very long time if at all any time in the past, then it behoves us to consider the possibility that the economy could be growing far better than what we are actually measuring.”
In a post on X, Finance Ministry said: “Real GDP growth clocked 7.6% in Q2 FY 2023. The real GDP growth has surprised on the upside by not only being higher than the median projections of 6.8% by professional forecasters but also their highest estimate of 7.4%,”
The RBI has projected the Indian economy to grow at 6.5% for the current fiscal.