Govt finances show improvement in tax effort, quality of expenditure
December, 01st 2015
The government has not only reduced the fiscal deficit, as the numbers for the April-October period show, it has also vastly improved the quality of the deficit. This is shown by the 31% rise in capital expenditure compared with the same period last year, while there has been a mere 3% rise in revenue expenditure. That is reflected in the revenue deficit, which has come down by a high 22.8% during April-October compared with the same period last year, while the shrinking of the fiscal deficit has been a lower 13.6%.
The expansion in capital expenditure has been possible because of the improvement in both tax and non-tax revenues. The improvement in tax revenues is also a step in the right direction, given that India’s tax-to-GDP (gross domestic product) ratio is low. The upshot: there has been a significant improvement not just in the quality of expenditure but also in the tax effort.
While the overall expenditure has gone up by 6.2%, the fact remains that the overall fiscal deficit has come down, which means the government is taking in more than it spends and the overall impact is expansionary.