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GDP growth fall is not only worry for Nirmala Sitharaman; this key economic metric also needs attention

FE Online

With GDP growth falling to a new low in Q2FY20, the government's finances are expected to be further strained moving ahead, a rating agency said. The decline in economic activity may lead to the government breaching the fiscal deficit target of 3.3 per cent of GDP for FY20, CARE Ratings said in a report. "Based on the shortfalls in GST and corporation tax collections and the lower than estimated growth in GDP 1in the first half of 2019-20, we estimate the gross fiscal deficit for the year to be in the range of 4.1-4.3%.GDP growth," it added. The economy grew at 7.1 per cent in July-September, lowest in three quarters, but still remained ahead of China to retain the tag of the world’s fastest-growing major economy.

The GDP at constant prices (2011-12) had grown at 6.3 per cent in July-September quarter of the last fiscal, according to government data released Friday. The fiscal deficit in the first seven months through October stood at Rs 7.2 lakh crore ($100.32 billion), or 102.4 per cent of the budgeted target for the current fiscal year, government data showed on Friday. The net tax receipts in the April-October period was Rs 6.83 lakh crore, while total expenditure was Rs 16.55 lakh crore, the data showed. "The decline in economic growth in the first 2 quarters of the fiscal and the resultant lower tax revenue collection (viz. GST) along with the corporate tax rate cut (announced in Sep'19 that estimated revenue loss of Rs.1,45,000 crs) and supplementary budget ( of Rs. 21,246 crs proposed on 28 Nov'19)," the report added.

Also read: Govt slows spending after a surge in the July-September quarter

In the second half of the fiscal, the economy is expected to see a higher rate of growth, CARE Ratings also said. The estimated GDP growth is seen of 6.3 per cent in the second half of 2019-20, it noted. The GDP growth for the whole year is pegged at 5.5–5.6 per cent. Finance Minister Nirmala Sitharaman has taken a slew of measures over the last few months to revive the slowing economy.