Rise in indirect tax collection has improved central finances. Government must utilise fiscal space to support economy

In step with the developments in the broader economy, the fiscal place of the central authorities noticed appreciable enchancment in the second half of the final monetary 12 months. As a consequence, regardless of the economy contracting in 2020-21, on the combination stage, the Centre’s gross tax revenues touched Rs 20.2 lakh crore in 2020-21, up 0.7 per cent from 2019-20. Complete tax collections, in reality, even exceeded the Centre’s personal revised estimates introduced in the Union price range in February by Rs 1.2 lakh crore. As a consequence of this greater than anticipated collection, the Centre has been in a position to limit its fiscal deficit to 9.3 per cent of GDP, decrease than its revised estimate of 9.5 per cent introduced in the price range.

A better have a look at the disaggregated fiscal information launched by the Controller Basic of Accounts signifies that a lot of the spurt in gross tax collections was pushed by indirect taxes — direct tax collections have been solely marginally greater than what was projected in the revised estimates. Indirect tax collections have surpassed direct tax collections, touching Rs 10.9 lakh crore (together with GST compensation cess) in 2020-21, up 13 per cent over the earlier 12 months. However a lot of this spurt was pushed by greater excise collections, which grew by a staggering 62 per cent (year-on-year) on the again of sharp hikes in petrol and diesel taxes, and customs duties, which grew by 23 per cent. On the expenditure aspect, the Centre has exceeded the revised allocations for meals subsidy by a staggering Rs 1 lakh crore. The revised estimates had already dramatically raised the meals subsidy allocation to Rs 4.22 lakh crore, up from the sooner price range estimate of Rs 1.15 lakh crore, on account of the Centre anticipating to clear a part of the excellent dues of the Meals Company of India. However the even greater expenditure now means that the remaining dues, which have been anticipated to be cleared by the Centre in 2021-22, have been cleared in 2020-21 itself. To the extent that this clearing up of the remaining FCI dues deliberate for this monetary 12 months has been preponed, it creates fiscal space for the Centre to support the economy this 12 months.

The financial outlook has modified significantly because the Union price range was introduced in February. Whereas new instances at the moment are a lot decrease than the peaks noticed in the second wave of the pandemic, analysts have already pared down their as soon as ebullient development forecasts. Giant segments of households and firms are going through important stress. The federal government ought to utilise no matter fiscal space it has to ramp up support to the economy.

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