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Government Performance |
Taxes are the main source of revenues, and account for nearly 10.5% of India’s GDP. Taxes account for 65% of central government revenues. However, the central government also resorts to borrowings to meet its resource requirements. In recent years, government debt has been worrying, with interest accounting for almost 21% of government expenditure - even higher than the plan expenditure. Subsidies and defence are the two major heads of government expenditure other than interest payments. Fiscal and revenue deficits have been causes for concern, and some steps have been taken to tighten government performance to contain these.
The Fiscal Responsibility and Budget Management (FRBM) Act enacted in 2003 requires a reduction in revenue deficit by at least 0.5% and fiscal deficit by 0.3% of GDP each year. However, the government is way off target in this respect. Revenue deficit, at 2.6%, was higher than the previous year’s 2.5%. Fiscal deficit at 4.1% in 2005-06, was as targeted although higher than 4% in 2004-05, despite tax revenue increases of over 21%. A notable aspect is that almost 33% of tax revenues foregone by government, by way of exemptions and concessions, are almost 50% of the amounts collected: in 2004-05, nearly Rs 1,587 billion in tax revenues were foregone, against gross tax revenues of Rs 3,060 billion (Euro 52.35 billion). |
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ICREON