Weak nominal GDP for FY 20 will adversely impact tax collections–Times of India

The first advance estimate of gross domestic product for 2019-20 carries no surprises. The GDP for the year is 5%, significantly lower than the previous year’s 6.8% and in line with the other forecasts. One aspect which should be of particular concern to finance minister Nirmala Sitharaman, ahead of the Union budget, is the forecast for nominal GDP. Nominal GDP, which is unadjusted for inflation, is expected to grow 7.5%.

Two things to note in this context are that the forecast in nominal terms is lower than the 12% on which the last budget was based, and the GST collections have so far been weak. It is nominal GDP that is of relevance for tax collections.

Therefore, the next budget will have to factor in the unravelling of the previous one in terms of its assumptions and tax collections. It is entirely possible even now that the next budget will not show any significant slippage in fiscal deficit numbers on account of unpaid dues to public sector units. But the budget has to be constructed around the fact that in nominal terms we may be in a situation where tax collections will grow at a lower pace compared to the recent past.

At this point, the credibility of budget numbers does matter as it influences the interest rates. It is best for government to stick to a realistic assessment of what can be collected through tax revenues in the next financial year.

via Weak nominal GDP for FY 20 will adversely impact tax collections

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