New Delhi: The Narendra Modi government expects an improvement in its finances in the second half of the current financial year 2021-22 on the back of increased momentum in the economic recovery.
“Buoyancy in revenue receipts, particularly in tax receipts, in the first half of the current financial year helped to achieve all mid-year benchmarks. Better fiscal results are expected with the increased momentum of the economic recovery in the second half of the current financial year,” the Ministry of Finance said Tuesday in a half-yearly review of its finances.
India’s GDP saw a massive contraction of 7.3 per cent in 2020-21, primarily due to the lockdown necessitated by the spread of Covid-19 in the country, bringing economic activity to a halt. As a result of the low-base effect, the GDP expanded 13.7 per cent in the first half of 2021-22.
The ministry said even as India recovers from the harsh economic impact of the two waves of the pandemic, there has been a definite uptick in tax collections.
“Increased tax collections also implies that the country’s economy is, slowly but surely, getting back on the rails,” it said.
Both direct and indirect tax collections have seen robust growth in the first half of the current fiscal. While direct taxes, which include income and corporation tax, grew 83.7 per cent as compared to last year, indirect taxes, which include goods and services tax, excise duty and customs duty, grew 48 per cent.
Spending and fiscal deficit
The spending, however, slowed a bit in comparison to last year. In the first half of FY22, the government spent Rs 16.26 lakh crore, which is 46.7 per cent of the full-year budget target. On an average in the last five years, the spending in the first half usually stands at 52.2 per cent of the budgeted estimates.
The total spending of the government in 2021-22 is estimated at Rs 34.83 lakh crore.
According to the latest available data from Controller General of Accounts, the fiscal deficit till October was down 42.6 per cent at Rs 5.5 lakh crore, when compared to the same period last year, accounting for 36 per cent of the budget target for the full year.
The government’s fiscal deficit target for 2021-22 is Rs 15 lakh crore, or 6.8 per cent of GDP. Fiscal deficit is defined as a gap between government’s revenue and spending.
To mitigate the economic impact of the pandemic, the government has announced various spending measures in the last two years. The ministry, however, said the focus of the government has also been on fiscal consolidation.
“Increasing the buoyancy of tax revenue through improved compliance, mobilisation of resources through monetisation of assets, improving efficiency and effectiveness of public expenditure etc. are the important measures directed towards this goal,” the ministry review report said.
In Budget 2021-22, Finance Minister Nirmala Sitharaman announced that the government aims to achieve a fiscal deficit target of below 4.5 per cent by 2025-26, abandoning the earlier fiscal consolidation roadmap in order to support the economy recovering from the slowdown caused by the pandemic.
(Edited by Amit Upadhyaya)