Really real, or not.

"Nirmala Sitharamna's budget has been widely hailed for achieving what can be called an impossible trinity - increasing capital spending by 33%, slashing income tax, and yet reducing the fiscal deficit," wrote Swaminthan SA Aiyar. But economist Prachi Misra has been warning of an "unspectacular but inexorable rise in interest payments that are eating into resources that should be spent on infrastructure, social sectors, and other 'public goods'." No worries. "To sustain a fiscal deficit, real GDP growth should be faster than the real interest rate." The problem is that the ratio of central tax receipts to GDP was 10.1% on 2013-14, 11.2% in 2017-18 (when the economy was booming) and then slid to just 9.8% in 2019-20. It was 11.1% in 2022-23. Real GDP is calculated from nominal GDP by adjusting for inflation using a base year as a deflator. Investopedia. India uses 2011-12 as the base year, wikipedia. In 2021-22, India's GDP at current prices, or nominal GDP, was Rs 236.65 trillion, while GDP at constant prices, or real GDP, was Rs 147.36 trillion. The Quint. The enormous difference of nearly Rs 89 trillion was because of extremely high inflation. "A real interest rate is an interest rate that has been adjusted to remove the effects of inflation." Investopedia. It is derived by subtracting the rate of inflation from the nominal interest rate. The Reserve Bank kept interest rate fixed at 4% for 24 months from May 2020 to May 2022, NDTV, even though the consumer price index (CPI) inflation was never below 4%, often rising above the upper tolerance limit of 6%, rateinflation.com. It was 7.8% in April 2022. Thus, the real interest rate has been negative all this time, severely hurting savers by giving lower returns and eroding the value of their savings, while helping the government by keeping borrowing costs low. Essentially, the RBI was transferring money from citizens to the government, thus acting like the government's tax department rather than the country's central bank. Aiyar is therefore being disingenuous when he claims that the tax/GDP ratio has not increased. The RBI raised its interest rate for the first time in two years in an emergency meeting on 4 May. ET. This was a panic reaction to the anticipated rise by the Federal Reserve in the US in its meeting on 5 May. Forbes. Even so the RBI's policy remained accommodative and towards supporting growth of the economy. High prices also help the government by increasing GST collections. "GST collections for the month of January stood at Rs 1.55 lakh crore (Rs 1.55 trillion), according to data shared by the Finance Ministry. This is the second highest mop-up, next only to the collection reported in April 2022. ET. Real GDP and real interest. Are they real if one is suppressed? By the RBI.