The promise of GST: Soaring revenue and stable prices
The government expects tax buoyancy to continue to rise in the second quarter (Q2) also as a result of the general tax buoyancy experienced in the first (Q1) by 32 per cent over the fourth quarter (Q4) of the last fiscal.
A similar uptick has been experienced in direct tax collection too at 25 per cent higher than the previous quarter, according to a recent report.
As a sharp contrast to economic experts' warning of disruption in the tax collection machinery and consequently slower revenue growth, the government is still sanguine about higher tax collection and growth rate, which is surprising but ambitious.
The medium and long-term expenditure framework released recently reflects this ambition of the government clearly. Its spending plan for FY'16, '17, '18 and '19 is tabled below:
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| Source: The Economic Times, August 18, 2016. |
The Goods and Services Tax (GST) is expected to help keep the tax revenue-to-GDP ratio in the range of about 10.9 per cent in FY'18 and 11 per cent in FY'19, while it was 10.7 per cent in FY'15 and 10.8 per cent in FY'16 (estimated).
The major breakthrough by the present government has been doing away with the distinction between plan and non-plan expenditures with effect from 2017-'18. The government expects to devote more on capital expenditure than on revenue and make corrections to the imbalance between the two at present.
The other interesting projection of the government is keeping the expenditure-to-GDP ratio at 13.1 per cent in FY'17 and 12.2 per cent in FY'19. This is mainly expected to come from non-development expenditure cuts proposed in the medium and long term.
It has been the concern of everyone, including the outgoing Reserve Bank of India (RBI) governor Raghuram Rajan, that with the disbursement of pay, arrears and pensions relating to the Seventh Pay Commission, an inflationary trend is very much in the offing.
Though the amounts set aside by the government are adequate to meet the pay and pension bills, it will be some time before it is all absorbed and things start looking up.
Some amount of inflow is likely from routine disinvestment, in the order of Rs 40,000-50,000 crore every year in FY'17, '18 and '19. The big shot in the arm of the government is said to be savings from subsidies on fuel and food.
The new estimate of spending on subsidy-to-GDP ratio is 1.5 per cent in FY'17, 1.3 per cent in FY'18 and even 1.2 per cent in FY'19.
In short, the GST roll-out is hoped to boost revenue collection in the medium to long term and spur economic growth as well as stabilise prices, say by the turn of 2020.