Ahead of the Union Budget on February 1, the Prime Minister’s Office (PMO) has instructed Finance Minister Nirmala Sitharaman not to set overambitious tax and fiscal deficit targets.
According to IANS, the ministry in deference to the PMO’s instructions, is likely to set the nominal Gross Domestic Product (GDP) at 9.5-10 per cent in the FY21 Budget.
“This year, there will be a realistic assessment of the nominal GDP,” the IANS report quoted a source as saying.
The Finance Ministry has been reportedly asked to refrain from overestimating the nominal growth rate in a bid to make the economy seem lucrative for investors, market and rating agencies, as it did last year. Quoting experts, the report said such overestimation often burdens tax officials with high targets, which they try to meet by conducting raids, causing inconvenience to investors and individuals.
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The targets for direct taxes like income tax and corporate tax, and indirect taxes like goods and services tax (GST) depend on the nominal GDP.
Quoting experts, the report, said the tax collections target should be conservative as the nominal GDP figures are likely to be low for FY20.
The FY20 budget had pegged the expected nominal GDP for 2019-20 at ₹2,11,00,607 crore, an 11 per cent growth over the previous year. The advance estimate has now shown the GDP growth at 7.5 per cent for FY20.
But, if first estimates are to be believed, the real GDP growth could be as low as 5 per cent for FY20.
The PMO’s office is also taking care to ensure that there were no ‘clerical’ errors in tabulating expected numbers this time, the report said. The government last year faced severe backlash for showing two nominal GDP growth figures.
“While Sitharaman gave out 12 per cent nominal growth number, estimating the GDP at current prices at ₹211 trillion, the medium-term fiscal policy cum fiscal policy strategy statement presented with the budget, set the nominal GDP growth at 11 per cent,” the report said.
The ministry is also likely to inspect revenue estimates and fiscal deficit targets to avoid failing to meet any inflated estimates, especially at a time when it is fighting two perceptional issues – transparency in disclosing budget data, and not to set ambitious tax revenue and fiscal deficit targets, the report added.