Fiscal Realities

Context: The fiscal stress caused by COVID has its roots in the fiscal regression of the past years. The fiscal numbers from both the revenue and expenditure sides provide insight into it.

The Fiscal Problems: The recent announcement by the Finance Minister while focused on short term issues, it is the longer-term fiscal problems that need to be addressed.

• On Revenue side: The total receipts, which at their peak a decade ago were 15.8% of GDP, have fallen to barely 12%.

• Indirect Taxation: The Goods and Services Tax collections have declined to 4.8%, similar to collections before its introduction i.e. 4.4% of GDP in 2013-14
• Non-Tax Revenue and Capital Receipts: Fell from 6.8% of GDP in 2013-14 to not more than 4%

• Mainly due to failure in deriving revenues from telecom sector and disinvestment programme.

• On Expenditure Side: The expenditure has been increasing due to financial commitments to fund new welfare programmes.

Two way Government’s Response 

1. Asked for bigger dividends from the Reserve Bank of India and state-owned undertakings.
2. Raised petroleum taxes further, and given the virtually absent cost-push inflation, considered to be a right move

Way Forward: The government should stop further capital infusion into the government’s banks, which will be asked to take care of themselves or get privatized.