Robust Revenue Inflows Bolster Centre’s Financial Position 2023
The financial health of any government is closely tied to its ability to collect revenue efficiently and effectively. For the Government of India, this entails not only collecting taxes but also generating income through various non-tax sources.
In recent years, the Indian government has witnessed a significant boost in its finances due to robust tax and non-tax receipts.
In the first half of the current financial year, the Center’s fiscal deficit was within a relatively comfortable range, at around 39.3% of the budget estimate (BE), down from 37.3% of the same objective in the same period last year.
The biggest type of revenue, net tax revenues, increased by 15%, but non-tax revenues increased by 50% as a result of an increase in the RBI dividend. This occurred in the context of a robust 43% annual increase in capital and a 10% growth in revenue expenditure.
September 2023 saw a 4% decrease in revenue spending to Rs 3.3 trillion while capex increased by 29% to Rs 1.2 trillion, the largest amount for any month in H1FY24.
A Financial Expert research suggests that the Center’s overall dividend revenues in FY24 may surpass the budget target by around Rs 60,000 crore, owing to the higher surplus receipts from the RBI and probable robust profitability of state-run companies.
In FY24 (the accounting year FY23), the Reserve Bank of India’s surplus transfer to the Central Government increased by 188% year over year to Rs 87,416 crore. This amount was extremely near to the Rs 91,000 crore projected from dividend revenues from the RBI, public sector banks and financial institutions (Rs 48,000 crore), and the CPSEs in FY24.
Tax devolution in September 2023 was 25% more than a year earlier, even though it remained unchanged from the previous month. According to Icra’s calculations, the amount that the Centre must release to the states in the next six months to fulfil the FY24 BE is Rs 5.66 trillion, or almost the same as the amount that was devolved in October through March of FY23.
The Centre spent slightly more on main subsidies—food, fuel, and fertilizer—in H1 FY24 at Rs 2.06 trillion as opposed to Rs 1.99 trillion during the same time last year.
Robust Tax Receipts:
- GST Collections:
One of the key drivers of the Centre’s improved finances has been the successful implementation of the Goods and Services Tax (GST) regime. GST has simplified the taxation system, broadened the tax base, and minimized tax evasion. The consistent growth in GST collections has provided a stable source of revenue for the government. In recent years, GST collections have consistently surpassed the one lakh crore mark, indicating a healthy trend in tax revenue.
- Direct Taxes:
Direct taxes, including income tax and corporate tax, have also played a crucial role in augmenting the government’s finances. The government has undertaken various reforms to enhance tax compliance and widen the tax net. Additionally, efforts to curb black money and promote digital payments have contributed to increased direct tax collections.
The government owns various PSUs and receives dividends and profits from their operations. The performance of these PSUs directly impacts non-tax receipts. Strategic disinvestments and improved management practices have led to higher dividends and profits, providing an essential source of income for the government.
The telecom sector has been a significant contributor to non-tax receipts, primarily through spectrum auctions. The government has successfully auctioned spectrum to telecom companies, resulting in substantial revenues. These auctions have been driven by the increasing demand for high-speed data services.
The government has been actively involved in the disinvestment of its stakes in various public-sector enterprises. This strategic move not only reduces the fiscal burden on the government but also infuses capital into the economy. Recent disinvestments in sectors like aviation, energy, and infrastructure have been successful in attracting investors and fetching substantial revenues.
The robust tax and non-tax receipts have enabled the government to strengthen its fiscal position. It allows for better management of budget deficits, reduces the need for excessive borrowing, and promotes fiscal consolidation. A stronger fiscal position enhances India’s credibility in international financial markets.
Increased revenue from non-tax sources, particularly from the sale of assets and public-sector disinvestment, can be channeled into infrastructure development. This is crucial for India’s economic growth, as it not only boosts economic activity but also creates jobs and improves the overall quality of life for citizens.
Adequate government revenues enable the implementation of various social welfare programs, including health, education, and poverty alleviation. These programs are essential for addressing socio-economic inequalities and improving the well-being of vulnerable populations.
A stable fiscal environment, supported by robust tax and non-tax receipts, fosters economic growth.
It provides businesses with confidence, encourages investments, and stimulates consumer spending, all of which contribute to a healthy and growing economy.
The robust tax and non-tax receipts of the Government of India have bolstered its finances, leading to fiscal stability and promoting economic development.
The successful implementation of GST, improved tax compliance, dividends from PSUs, spectrum auctions, and strategic disinvestments have all contributed to this financial upswing.
The government must continue its efforts to sustain and enhance these revenue streams, as they are instrumental in achieving long-term fiscal objectives and supporting the nation’s development agenda.
