Nominal GDP growth is likely to fall in 2023-24, hurting tax collections and putting pressure on the Union government to reduce the Budget gap by cutting expenses ahead of national elections in 2024.

Nominal GDP growth, which includes inflation, is the benchmark used to estimate tax collections in the upcoming Budget to be presented on February 1. It is estimated to be around 15.4 per cent for the current financial year.

At least four leading economists expect nominal GDP growth to come in between 8 and 11 per cent as inflation slows and real GDP growth eases from an estimated 7 per cent this year, when pandemic-related distortions and pent-up demand pushed up growth rates. 

A lower tax revenue will limit the government’s ability to spend and support the economy as the country heads to national elections in 2024. It will also strain efforts to bring down the fiscal deficit towards the medium-term target of 4.5 per cent of GDP by 2025-26. 

“Higher nominal GDP growth has not only helped in lowering public debt and fiscal ratios, but has also resulted in pushing up credit growth to 16-17 per cent year-on-year in FY23,” Deutsche Bank’s Chief India Economist Kaushik Das wrote in a note on Monday. 

Mr Das said that he expected nominal GDP growth of 8-9 per cent in FY24, with inflation and real GDP growth seen declining. Growth of 8-9 per cent would bring that number close to the 7.6 per cent nominal growth seen in 2019-20, before the COVID crisis hit.