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INDIA’S FISCAL DILEMMA

  • Published
    13th Feb, 2023

Context:

The government's consolidation strategy relies heavily on centralisation, which has both limits and limitations in approach. NBFC crisis in 2020-21, the pandemic year of 2020-21 and 2021-22 the recovery and the Global turmoil in 2022-23, in the wake of the Russian invasion of Ukraine has affected India’s Fiscal consolidation in a negative way.

India’s fiscal resilience to uncertain situations:

  • Tax Collection and capital expenditure:Tax collections as a per cent of GDP are actually marginally higher than they were in 2018-19. Capital expenditure soared from 1.5 per cent of GDP to a budgeted 3.5 per cent of GDP.
  • Fiscal Deficit: Fiscal deficit is now on a downward trajectory, budgeted to fall to about 6 per cent of GDP next year from a Covid peak of more than 9 per cent.
  • Mixed developments in Revenue collection: Personal income taxes shown an encouraging rise, GST’s collection ratio has remained essentially the same as it was five years ago and corporate tax revenuedeclined significantly, because tax rates have been reduced.
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