The government is banking on a rising direct tax receipts to fund a growing expenditure budget as macroeconomic managers wonder how to balance development spending with a yawning fiscal deficit.

A senior official said the government is likely peg the real gross domestic product (GDP) growth rate for 2010-11 at 8 per cent with direct tax collections for 2010-11 set at over Rs 4 lakh crore, up from Rs 3.7 lakh crore in the previous year.

The government is also hoping higher direct tax revenues, aided by surging incomes, would raise the tax-to-GDP ratio to about 12 per cent in 2010-11.

The tax-to-GDP ratio rose from 9.2 per cent in 2003-04 to 12.6 per cent in 2007-08, but the economic downturn pulled down the ratio as to less than 11 per cent in 2008-09 as tax revenues fell sharply on the back of lower corporate earnings.

“The short-term objective is to bring back the ratio to about 13 per cent by 2012-13,” said the official.

“In view of the nascent signs of recovery in the Indian economy as well as the world economy during the last few months, the direct tax revenue is estimated to show higher buoyancy,” the official said.

Aided by consumer spending, the economy grew 7.9 per cent year-on-year during the

July-September period – its strongest in six quarters.

GDP growth had slowed to 6.7 per cent in 2008-09 after clocking an average of 9 per cent for four straight years.