Can India meet its fiscal deficit target amid fluctuating high-frequency economic indicators?

In this episode of the State of the Economy podcast, BusinessLine’s Shishir Sinha discusses the latest high-frequency economic indicators with Devendra Kumar Pant, Chief Economist, India Ratings and Research. The dialogue covered three key economic indicators: Goods and Services Tax (GST), key sector numbers and fiscal deficit.

The chapter begins by highlighting recently published high-frequency economic indicators. Pant emphasizes the importance of looking beyond monthly year-over-year growth figures and considering year-to-date trends. He addresses the issue of whether April should be considered part of March or a separate month in deficit calculations.

read more:Manufacturing PMI hits 5-month low of 57.5 in September: What it means for India’s economy

Analyzing the first half of the fiscal year, he notes that although growth peaked in June, it is still in line with budget assumptions. However, he cautions that real GDP growth may decelerate in the following quarters and inflationary patterns, particularly in the wholesale price index (WPI), may affect nominal GDP growth and GST collections.

Pant points to disparities in consumption patterns, with higher income groups driving consumption growth while lower income segments lag behind. He also highlighted variations in GST growth across states, indicating regional disparities. The podcast details the recent surge in consumer demand and GST collections. Pant urges caution, saying past trends have shown short-term growth in consumption. He emphasizes the need for sustainable growth and expresses concerns about possible shocks to the system if inflation runs high.

read more:GST collections rose to ₹1.63 lakh crore in September, slowing growth

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Pont acknowledged capital spending increases on the podcast. This is because governments are front-loading their capital projects, which generate faster returns on investments. However, he notes the government’s limited capacity for sustained fiscal stimulus, especially with high deficits. The conversation touches on the unpredictability of corporate and income tax collections, citing the need to analyze fluctuations and long-term trends rather than monthly variations.

Regarding achieving the fiscal deficit target, Banth focuses on divestment as an important factor. He notes that if divestment proceeds are substantial, the government can stick to its deficit target. He also mentions the importance of money management to avoid last-minute expenses.

Taking into account factors like oil prices, fruit prices and the pass-through effect on consumers, Pant expects the inflation rate to be 5.9% for September. He points to persistent double-digit inflation in grains, which affects those who share the highest share of food costs and may affect consumption and interest rates.

Pant points to the need for sustainable consumption growth, the challenges of managing fiscal deficit and the impact of inflation on various segments of the population. It also highlights the importance of divestment and money management in achieving financial goals.

(Anchor: Shishir Kumar Sinha, Producer: Anjana PV)

About the economic situation

India’s economy has been hailed as a bright spot amid the general gloom surrounding the rest of the world. But many sectors continue to falter while others seem to be firing on some cylinders. BusinessLine brings you podcasts with experts from finance and marketing to technology and startups to help you understand the array of contradictions the country faces.

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