Analysis of Total Receipts of India

During the Post-Reforms Period (1991 to 2013)

Submitted By:Submitted To:Prof. Manoj Kumar Sharma Pranav Shandil MBA(Section-A)

INTRODUCTION The central government plays the role of God Government or Father of other layers of government state and local governments - in the Indian fiscal system, which is federal in character. Sound financial management of the central government thus creates sound financial environment in the whole economy. Till the late seventies, there was no such fiscal problem as the revenue account of the central governments budget, except for two years, always showed a surplus, though of a modest magnitude. It was in 1979-80 that a decisive break came, from when there has regularly been a deficit. Throughout the 1980s the growth of current expenditure outstripped the growth of current revenue, leading to widening of the governments budget deficit on revenue account and growing recourse to borrowing from domestic and external sources, to finance this deficit as well as expenditure on capital account. This mounting stock of public debt led to burgeoning of interest payments on the governments revenue account deficit and pre-empting an increasing fraction of expenditure for meeting such debt service obligations. The widening gap between the income and expenditure of the central government in the federal structure resulted in a widening gap between the income and expenditure of the state governments and ultimately of the economy as whole. This was reflected through growing current account deficits in the balance of payments and macro economic imbalances in the first year of the 1990s. Thus, in order to improve the situation of the economy, the economic reform package was introduced in 1991-92. Fiscal reform was the key component of the economic reform programme which targeted reforms in revenue structure and expenditure front. In order to improve the position of widening budget deficits and macro-economic imbalances in the Indian economy, fiscal reform process was considered as a key component of economic reform measures which commenced in 1991. The main reason of the budgetary deficit was the higher growth of current expenditure as compared to growth of current revenue. It was difficult to control expenditure, so the main target of fiscal reform process was to augment revenue. In order to increase revenue, comprehensive tax reform measures were undertaken and non-tax revenue side was almost ignored.

Composition of Receipts:-

The data provides classification of central government receipts into two major components a) Revenue receipts. b) Capital receipts. Revenue receipts are divided into tax and non-tax revenue. Tax revenues are made up of taxes such as income tax, corporate tax, excise, customs and other duties which the government levies. Non-tax revenue consists of interest and dividend on investments made by government, fees and other receipts for services rendered by Government.

All these receipts added together contribute to the total receipts of a country.

Receipts Data:Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Revenue Receipts 66030 74128 75453 91083 110130 126279 133886 149485 181482 192605 201306 230834 263813 305991 347077 434387 541864 540259 572811 788471 766989 935685 Capital Receipts 38528 36178 55440 68695 58338 61544 99077 130064 115707 134184 162500 180531 211333 200391 179549 144482 170807 343697 451676 408857 551730 555241 Total Receipts 104558 110306 130839 159778 168468 187823 232963 279549 197189 236789 363806 411365 475146 506382 526626 578879 712671 883856 1024487 1197328 1318719 1490926

TRENDS OF REVENUE OF THE CENTRAL GOVERNMENT Total receipts, receipts on revenue account and receipts on capital account of the central government have been continuously increasing since 1991-92 (Graph 1). The total receipts as well as receipts on revenue account of the central government increased almost fourteen times and a similar trend (fourteen times) has been observed in the case of receipts on capital account. Total receipts of the central government have been continuously increasing since 1991-92 except for one year. The deterioration in 1999-2000 was due to the decline in interest receipts, shortfall in recoveries of loans and advances, lower receipts under external assistance than originally anticipated. The fiscal situation had assumed a crisis by the beginning of the fiscal year 1991-92. To cope with the situation the government aimed at augmenting revenue and taxation being a major source of revenue, a number of measures were announced in 1991-92. As a result, revenue

receipts stepped up to Rs. 54186468 crore in 2007-08 from Rs. 104558 crore in 1991-92. But compound growth rate of the revenue receipts of the central government is less (13 per cent per annum) during post-reform period of 1991-92 to 2005-06. This indicates that there is a need to make more efforts to increase revenue receipts in order to meet the fiscal crisis. Year wise movement of Various Receipts:(Graph 1) (In Rs. Crore)
1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 Revenue Receipts Capital Receipts Total Receipts

1993-94

2003-04

1991-92

1995-96

1997-98

2001-02

2005-06

2007-08

2009-10

Share of Revenue and Capital Receipts in Total Receipts of the Central Government (Graph 2) (In Rs Crore)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1991-92 1993-94 1995-96 1997-98 2001-02 2003-04 2005-06 2007-08 2009-10 1999-2000 2011-12

1999-2000

2011-12

Capital Receipts Revenue Receipts

The share of revenue receipts and capital receipts in total receipts of the central government from 1991-92 to 2012-13 has been shown in Graph 2. Revenue receipts, as a proportion of total receipts of the central government, were almost 63% in 1991-92 which declined by almost 8 percentage points in one decade and reached to 55% per cent during 2001-02. This was mainly due to the reduce in the direct taxes implemented by the government. In 1996-97, when the growth was on a high, the government decided to reduce the tax rates to ease the pressure on the people and to spur further growth by increasing investment in the country. Receipts as a percentage of GDP :Year 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Revenue Receipts 66030 74128 75453 91083 110130 126279 133886 149485 181482 192605 201306 230834 263813 305991 347077 434387 541864 540259 572811 788471 766989 935685 Capital Receipts 38528 36178 55440 68695 58338 61544 99077 130064 115707 134184 162500 180531 211333 200391 179549 144482 170807 343697 451676 408857 551730 555241 Total Receipts 104558 110306 130839 159778 168468 187823 232963 279549 197189 236789 363806 411365 475146 506382 526626 578879 712671 883856 1024487 1197328 1318719 1490926 GDP 1237458 1237448 1284178 1316632 1401598 1529902 1593007 1669317 1757439 1977900 2028224 2136524 2257425 2404382 2659991 2839031 3054786 3350101 3513791 3851114 4116840 4343266

The receipts as a share of GDP reveal the picture of role of the central government in the Indian Federal setup. Graph 3 exhibits total receipts, revenue receipts and capital receipts of the central government as per cent of GDP. The share of total receipts of the central government in GDP had risen from 8.45 per cent in 1991-92 to 14.62 per cent in 1997-98, but thereafter, large fluctuations have been observed. The share of total receipts even

declined to 5 per cent for two years (2000-01 and 2001-02) during the post-reform period. Despite numerous measures initiated by the government, a disquieting picture of shortfalls in revenue is quite visible. During the post-reform period, revenue receipts as per cent of GDP have gone up from 5.33% of the GDP to 15.3% of the GDP in 2006-07. This growth was due to the revenue led strategy of the government for achieving the targets set under the Fiscal Responsibility and Budget Management Act, 2003 and the rules made there under (Economic Survey, 2005-06). Thereafter, a slight improvement in the revenue receipts GDP ratio owes to the macroeconomic policy frame in 2007-08 which facilitated the implementation of some of the key points in the fiscal reform agenda included those articulated in the Kelkar Task Force Reports on direct and indirect taxes (Economic Survey, 2008-09). Receipts as a percentage of GDP:Graph 3 (In Rs Crore)
80 70 60 50 Tot/GDP 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Cap/GDP Rev/GDP

(1, 2,3......... 22 represent years from 1991, 1992, 1993...... 2013)

Revenue, Capital and Total Receipts as a percentage of GDP:Rev/GDP 5.335938674 5.990393132 5.875587341 6.917878344 7.857459842 8.254058103 8.404608392 8.954859982 10.32650351 9.737853279 9.925235083 10.80418474 11.68645691 12.72638874 13.04805167 15.3005374 17.73819835 16.12664812 16.30179484 20.47384211 18.6305273 21.5433501 Cap/GDP 3.113479407 2.923597598 4.317158525 5.217479144 4.16224909 4.022741326 6.219495583 7.791450036 6.583841601 6.784165024 8.011935565 8.449752963 9.36168422 8.33440776 6.749985244 5.089130763 5.591455506 10.25930263 12.85437865 10.61659042 13.40178389 12.78395106 Tot/GDP 8.449418081 8.913990729 10.18854084 12.13535749 12.01970893 12.27679943 14.62410397 16.74631002 11.22024719 11.9717377 17.93717065 19.2539377 21.04814113 21.0607965 19.79803691 20.3900204 23.32965386 26.38296577 29.15617349 31.09043253 32.03231119 34.32730116

Conclusion:The following results have been observed from the analysis:Through the enactment of several reform, like the FRMBA (Fiscal Responsibility and Budget Management Act, 2003), has improved the fiscal position of the Govt. of India significantly. This improvement in the fiscal position of the central government has been achieved on the strength of higher revenues. Secondly, there has been a significant increase in receipts on the revenue account and capital account of the central government. With the reform measures undertaken by the central government, revenue receipts as compared to the capital receipts of the central government have grown at a higher rate during the post-reform period.. Thirdly, significant improvement in the revenue receipts as per cent of GDP has been observed in the post-reform period as the percentage has gone from 5.33% in 1991-92 to 21.5% in 2012-13 This is because both thetax revenue as well as non-tax revenue of the central government had grown at a high rate.