Budget – Revenue and Expenditure Analysis..

The Budget for year 2017-18 projects a total shortfall of Rs 5.5 lakh crore with total expenditure projected at Rs 21.5 lakh crore against receipt (excluding states’ share) of Rs 16 lakh crore . A look at the different components of the budget.

Receipts are classified as revenue receipt or capital receipt. Revenue receipt are further classified as tax revenue or non-tax revenue such as dividends, interest receipt etc. Capital receipt are primarily disinvestment income, spectrum sale etc. However, the primary source of receipt is tax revenue (75% share), further classified as direct and Indirect taxes revenue. Direct taxes comprise of individual income tax and corporation tax which is the taxes paid by companies on their profits. Budget for 2017-18 projects a sharp increase of 25% in income tax at Rs 4.3 lakh crore whereas corporation tax is projected to reach Rs 5.4 lakh crore, growing at 9%, nearly the same as in the current year. The sharp increase projected in income tax, which has grown at 35% in the current year as so far, assumes significance on account of large increase in bank deposits post demonetization.  The government could even be modest in its calculations as this number may end up even higher than this.

Indirect taxes consist mainly of Customs, Excise and Service tax. Budget projects total indirect taxes to reach Rs 9.3 lakh crore, an increase of 9% against 20% increase in the current year. The lower projections are probably a result of anticipated loss due to transition to GST. While the total tax revenue works out to Rs 19.1 lakh crore, about 35% of this has to be shared with the state government, leaving Rs 12.3 lakh crore for the central government.

An important trend in revenue collection is shift towards direct tax, which are levied on income, from indirect taxes which are levied on production which could go towards consumption, exports or investments. Direct taxes formed only about 26% of revenue collection (direct plus indirect) in FY00 which has now gone beyond 50%. Although there are gaps in the hypothesis, yet, direct taxes are considered more efficient method of collection since it targets rich more than the poor.

Other than tax revenue, budget projects Rs 2.9 lakh crore of non-tax revenue receipt and 0.8 lakh crore of capital receipt. Even though the sick PSUs give sufficient bad name to the government, there are a large number of profit making PSUs which together should provide Rs 1.4 lakh crore of dividends. Capital receipt is the number prone to maximum deviation as disinvestment targets are often missed.

The expenditure side shows interest payments as the biggest block accounting for as much as Rs 5.4 lakh crore, more than 40% of tax revenues. While this may look like a middle class household paying a large part of the salary for housing EMI, its share has actually come down from more than 60% of tax revenue in FY00. Among other items, Pension & other government expenditure, Defence expenditure, Railways and food subsidy are projected to cost about Rs 2.2 lakh crore,  Rs 1.8 lakh crore, Rs 1.8 lakh crore and Rs 1.5 lakh crore. Other than the share of tax revenues, central government also provides a significant grant-in-aid to the states which is projected at Rs 3 lakh crore during the year.

Excluding there items, totaling about Rs 16 lakh crore, which are largely permanent in nature, government is left with Rs 5.5 lakh crore for actual developmental work. Of this,  Rs 1.1 lakh crore would be spent in rural area for program such as MGNREGA, crop husbandry etc. whereas nearly the same amount would be spent on social services such as education, employment, medical, housing etc.

(Image courtesy – Ministry of Finance website)

 

Leave a Reply

Your email address will not be published. Required fields are marked *