Against the global trend of widening fiscal deficits and increasing debt burdens, India’s fiscal consolidation remains notable, according to the Economic Survey 2023-24. The latest data from the Office of Controller General of Accounts ( CGA ) reveals a reduction in the Union Government’s fiscal deficit, dropping from 6.4 percent of GDP in FY23 to 5.6 percent in FY24.
This reduction is attributed to strong growth in both direct and indirect tax revenues, driven by resilient economic activity and improved compliance. The tax revenues generated exceeded budgetary estimates, further supported by higher-than-expected non-tax revenue, including dividends from the RBI. The combination of buoyant revenues and restrained revenue expenditure has contributed to lower deficits.
The fiscal consolidation observed post-pandemic is largely due to increased revenue receipts, which include tax revenue (net to the centre) and non-tax revenue. These receipts grew by 14.5 per cent in FY24, with significant contributions from both tax and non-tax sources.
Gross tax revenue (GTR) saw an estimated growth of 13.4 per cent in FY24, driven by a 15.8 per cent increase in direct taxes and a 10.6 per cent rise in indirect taxes over the previous fiscal year.
Direct taxes accounted for 55 per cent of GTR, with the remaining 45 per cent coming from indirect taxes. The increased contribution of direct taxes aligns with efforts to enhance progressivity in taxation. The efficiency of tax collection has improved, with the cost of collecting direct taxes declining from 0.66 per cent of gross collections in FY20 to 0.51 per cent in FY23.
Indirect taxes, particularly GST, saw notable growth with a 12.7 per cent increase in collections. The rise in GST E-way bill generation post-pandemic indicates heightened compliance for both intra-state and inter-state trade. Despite these gains, there are calls for further rationalisation of the GST rate structure, elimination of rate inversions, and expansion of the tax base to ensure sustained growth.
Over the past seven years, GST has matured, improving tax buoyancy for both Union and State governments. However, ongoing demands include differentiating between serious and less serious offences, raising taxpayer awareness, encouraging voluntary compliance, and expediting dispute resolutions.
The Economic Survey 2023-24 highlights the significant fiscal measures and tax revenue performance that have helped India navigate post-pandemic challenges. As the nation continues to recover, the emphasis on maintaining fiscal prudence and enhancing tax efficiency will be critical for sustainable economic growth.
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