Increased Tax Buoyancy Expected to Boost Funding for Farmers and Social Sectors in Interim Budget

The upcoming interim budget is anticipated to benefit from the increased tax buoyancy, evident in both income tax and GST monthly collection data. This development provides the government with the flexibility to allocate additional funds for farmers and social sector schemes, without compromising fiscal responsibility, according to sources.

Current Tax Collection Trends

Sources reveal that the focus of the interim budget, likely the last significant economic policy document before the general elections, will prioritize addressing the challenges faced by marginalized sections of society, particularly in rural areas.

Income and corporate tax collections have demonstrated buoyancy in the ongoing fiscal year, with total direct tax collections projected to surpass budget estimates by approximately Rs 1 lakh crore. The government had initially aimed to collect Rs 18.23 lakh crore from direct taxes in the current fiscal year. As of January 10, the collections reached Rs 14.70 lakh crore, representing 81 percent of budget estimates.

In the realm of Goods and Services Tax (GST), Central GST revenues are expected to surpass the budget estimates of Rs 8.1 lakh crore by around Rs 10,000 crore. However, there might be a shortfall of approximately Rs 49,000 crore in excise and customs duties collections for this fiscal year.

Projections for the Next Fiscal Year

Estimates suggest that the Centre’s gross tax revenues could exceed the budget estimates of Rs 33.6 lakh crore by Rs 60,000 crore. ICRA’s interim budget expectations report forecasts an 11 percent growth in gross tax revenues for the next fiscal year (2024-25), primarily driven by direct taxes and GST collections.

Despite subdued growth in excise and customs duty collections, ICRA remains optimistic, citing a healthy nominal GDP growth forecast of 9.5 percent and a tax buoyancy assumption of 1.2 for FY2025.

Impact on Social Sector Schemes

The improved tax buoyancy provides the government with the opportunity to allocate more funds for crucial social sector schemes such as MGNREGA, rural roads, PM Kisan Samman Nidhi, and PM Vishwakarma Yojana, without deviating from the fiscal consolidation path.

The current fiscal deficit, estimated at 5.9 percent of GDP, is expected to be reduced to 4.5 percent by 2025-26, ensuring fiscal prudence amidst increased spending.

Expert Insights

Deloitte India Partner Sanjay Kumar highlights the government’s pragmatic approach in utilizing fiscal space while maintaining fiscal discipline. He notes that the government’s conservative fiscal policies during the pandemic have yielded favorable results.

Kumar anticipates a 10 percent increase in the budget size for the next fiscal year, with a focus on enhancing infrastructure and implementing women-centric schemes.

This insightful analysis underscores the government’s commitment to prudent fiscal management while prioritizing the welfare of farmers and vulnerable sections of society.