Economic Survey 2018 - Vol. 2, Ch. 2: Review of Fiscal Developments

The firm footing afforded by the Government to unleash tax reforms in the current year could be perused from the Charts Most fiscal indicators-revenue buoyancy, expenditure quality, devolution and deficits improved discernibly in the last three years.

Fiscal Indicators as Percentage of GDP

Receipts and Expenditure of the Central Government

Receipts

From the data on Central Government finances, three distinct patterns on the revenue front till November 2017 can be observed. The confluence of which is reflected in the trends in non-debt receipts of the Centre.

  1. The gross tax collections are reasonably on track.
  2. The non-tax revenues have visibly under-performed.
  3. Non-debt capital receipts, mainly proceeds from disinvestment, are doing well.

As against last year՚s achievement of ₹ 46,247 crore realized from 16 transactions of disinvestment, the budget estimate for 2017 - 18 was set at ₹ 72,500 crore, split into ₹ 46,500 crore from disinvestment of Central Public Sector Enterprises (CPSEs) , ₹ 15,000 crore from strategic disinvestment and ₹ 11,000 crore from listing of insurance companies.

The difference between the gross tax revenue and net tax revenue is mainly the tax devolution to the States. The share of States in taxes grew by 25.2% during April-November 2017, much higher than the growth in net tax revenue (to centre) ,

Disinvestment proceeds and non-tax revenues have shown contrasting growth patterns, the former reinforcing the revenue position and the latter dampening it.

More than half of the direct tax collections are normally realized during the last four months of the financial year. So, the budget targets for the current year are still not out of sight.

The indirect tax collections in the previous two years were buoyed by mobilization of additional resources (ARM) , prudently apportioning the petroleum price advantage into pass-through to the consumers and raising of development funds.

The pace of growth in indirect taxes during the first eight months is comforting. The budgeted growth for indirect taxes for the full year of 2017 - 18 is only 7.6% ; the growth so far is 18.3% .

The eventual outcome in indirect taxes during this year will depend on the final settlement of GST accounts between the Centre and the States and the likelihood that only taxes for eleven months (excluding IGST on imports) will be realized.

Expenditure and Deficits

  • Central Government expenditure progressed at a robust pace during April-November 2017.
  • One of the major fiscal reforms in the current year was the advancing of the budget cycle and processes by almost a month. This gave considerable leeway to the spending agencies to plan in advance and start implementation early in the financial year.
  • The expenditure trends in the current year at any midpoint-both as percentage of budget estimates and in terms of their growth rates-become not comparable with those of previous years.
  • The trends in fiscal and revenue deficits are the combined effect of the patterns in non-debt receipts and expenditure.
  • The early progression of expenditure, the fiscal deficit overshooting the budgetary target during April-November 2017 has also been due to the front-loading of some expenditure, undertaken as part of prudent expenditure management.
  • There was pressure on both revenue and fiscal deficits during the first eight months of the current year and that marked efforts will be required to meet the budgeted targets for the full year.
  • Movements in revenue expenditure can be majorly explained by changes in interest payment liabilities and subsidy payments. Interest payment liabilities have firmed up moderately during April-November 2017, possibly due to outgo on account of servicing the market stabilization bonds issued to reduce excess liquidity, post demonetization.
  • With the loss of price advantage in petroleum products in the international market, the petroleum subsidy has firmed up. On the whole subsidies seem to be within control and target.
  • The outgo on pensions grew strongly during the first eight months reflecting enhanced payments under the Seventh Pay Commission.

State and General Government

  • UDAY bonds had an impact of 0.5 and 0.6% points of GDP on deficits of the 26 States under consideration in 2015 - 16 and 2016 - 17 respectively.
  • The position of 21 State Governments that account for about 86% of the total GSDP of all states and for which comparable data are available shows that their revenue receipts have kept pace with the previous year in terms of growth and in relation to the corresponding budget estimates for the full year
  • Data on 23 States shows that both revenue and fiscal deficits as percentage of the corresponding budget estimates is lower in the current year, compared to the previous year.
  • State Governments and the Union Territory of Puducherry for the fourth quarter is expected to be in the range of ₹ 1,26, 2.0 billion to ₹ 1,38, 2.0 billion. This, combined with the advance estimates of GDP for 2017 - 18, means that all the States taken together would possibly be able to meet their targeted level of fiscal deficit, if the borrowing plan for the fourth quarter is adhered to and if no other significant means of financing is resorted to.
  • Coupled with the Central Government՚s target for reducing fiscal deficit by 0.3% points of GDP, the State fiscal targets for 2017 - 18 meant that the General Government targeted to achieve an overall improvement in their fiscal position in the current year, boosted by a compression in revenue expenditure and a modest improvement in capital expenditure.
  • For the general government as a whole, with the expected revenues from GST becoming increasingly clearer, the fiscal balance vis-a-vis budget estimates will depend on the emerging patterns of revenue expenditure in the fourth quarter.
  • The complexities involved in rolling out the GST, the preliminary assessment should be that the general government is navigating the initial phases of this momentous change reasonably. The difficulties faced by various sections of tax payers are being addressed through various rationalisation measures.

Examrace Team at Aug 29, 2021