Can India achieve 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 at India Ratings and Research. The conversation covers three key economic indicators: Goods and Services tax (GST), the core sector numbers, and the fiscal deficit.  

The episode begins by highlighting the recent high-frequency economic indicators released. Pant emphasises the importance of looking beyond monthly year-on-year growth figures and considering year-to-date trends. He addresses the issue of whether April should be considered as part of March or a separate month in deficit calculations. 

Read more:PMI manufacturing hits 5-month low at 57.5 in September: What it means for India’s economy

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

Pant points out disparities in the consumption patterns, with higher-income groups driving consumption growth while lower-income segments lag. He also highlights variations in GST growth across different states, indicating regional disparities. The podcast details consumption demand and also about the recent uptick in GST collections. Pant urges caution, stating that past trends have shown short-lived growth spurts in consumption. He emphasises the need for sustainable growth and expresses concerns about potential shocks to the system if inflation remains high. 

Read more:GST collection rose to ₹1.63 lakh cr in September, pace of growth slowed down

Pant acknowledges the increase in capital expenditure in the podcast. He attributes this to governments front-loading their capital projects, leading to quicker returns on investments. However, he mentions the government’s limited capacity for sustained fiscal stimulus, especially with a high deficit. The conversation touches on the unpredictability of corporate and income tax collections, citing fluctuations and the need to analyse longer-term trends rather than monthly variations. 

Regarding achieving the fiscal deficit target, Pant focuses on the role of disinvestment as a key factor. He notes that if disinvestment proceeds are substantial, the government may adhere to its deficit target. He also mentions the importance of cash management to avoid last-minute expenditure surges. 

Pant anticipates an inflation rate of 5.9% for September, considering factors like oil prices, fruit prices, and the pass-through effect on consumers. He highlights the persistent double-digit inflation in cereals, which affects those with a higher share of food expenses and can impact consumption and interest rates.

Pant points out the need for sustainable consumption growth, the challenges in managing the fiscal deficit, and the impact of inflation on different segments of the population. It also highlights the significance of disinvestment and cash management in achieving fiscal targets. 

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

About the State of the Economy podcast

India’s economy has been hailed as a bright spot amid the general gloom that seems to have enveloped the rest of the world. But several sectors continue to stutter even as others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups