Inflation Data and Economic Impact
Recent inflation data for India has shown promising results for consumers but poses challenges for government fiscal planning. Retail inflation, measured by the Consumer Price Index (CPI), recorded at 2.07% for August, while Wholesale Price Index (WPI) inflation was only 0.52% for the same period. These low inflation rates, although favorable for consumers, complicate the government's budgetary calculations.
Growth and Fiscal Implications
- Nominal GDP vs. Real GDP:
- The real GDP growth rate was 7.8% in April-June, a five-quarter high, whereas the nominal GDP growth was 8.8%, a three-quarter low.
- The government had expected a 10.1% nominal GDP growth for 2025-26, crucial for predicting tax revenue increases.
- Tax Revenue Impact:
- The central government's gross tax revenue increased by just 1% year-on-year, while net tax revenue fell by 7.5% in April-July.
Inflation Dynamics
- Reasons for Low Inflation:
- The low inflation is partly due to reduced Goods and Services Tax (GST) rates, which are expected to further decrease prices.
- Low inflation is favorable when resulting from oversupply rather than weak demand.
