let’s keep it real

India’s latest growth estimates provide relief. According to the Ministry of Statistics, the gross domestic product (GDP) is estimated to grow by 7% in 2022-23. This is better than the Reserve Bank of India’s (RBI) forecast of 6.8% about a month ago. Although it is slower than last year’s 8.7% expansion, it shows that the revival of our economy is taking place. Since last year’s off-the-charts figure was a one-off, thanks to last year’s Covid contraction, this year’s growth represents a real gain of significance after two years lost following the pandemic. The hope seen in many indicators is that India has also reversed the pre-pandemic slump. The mood is upbeat, backward areas are picking up and investment is finally picking up. Note, however, that the ministry’s nominal GDP growth estimate of 15.4% is much higher than the budget estimate of 11.1%. This translates into tax bounces reflecting higher inflation this year and creates fiscal space for the government to cover the expenditure excess. Given its increased debt burden and payback bill, it may be tempting to run down the large gap between real and nominal GDP. But we must live with low inflation and growth that is mostly real.