Review of key fiscal trends: 2014-15 to 2023-24
The combined tax-GDP ratio of GoI and the states had languished in the range of 16% to 18% over a period of more than three decades from the late 1980s up to the recent years. It fell to a trough of 16.1% during 2019-20 and 2020-21, affected by the adverse impact of two major tax reforms – Goods and Services Tax (GST) and CIT, and the COVID-19 pandemic. After that, the combined tax-GDP ratio recovered to 18.5% in FY24. GoI’s gross tax revenue (GTR) to GDP ratio has increased from a trough of 10.2% in 2020-21 to 11.7% in 2023-24, driven largely by a relatively high direct tax buoyancy.
The contribution of non-tax revenues (NTR) to overall revenue receipts for the combined account as well as for the GoI’s revenue receipts has been rather limited. While the combined NTR to GDP ratio has ranged between 1.9% to 2.8% during 2014-15 to 2023-24, GoI’s NTR relative to GDP has ranged from 1.05% to 1.82%. RBI’s dividends, an important component of GoI’s NTR, have shown periodic jumps during 2019-20, 2021-22, 2023-24 and 2024-25. The National Monetization Pipeline (NMP), introduced in the 2021-22 Union Budget, was an important NTR augmenting initiative. This included assets with monetization potential of INR6 lakh crore from 2021-22 to 2024-25. The government has realized nearly INR3.9 lakh crore against a target of INR4.3 lakh crore in the first three years.
On the expenditure side, the combined government expenditure relative to GDP has increased from 25.5% in 2014-15 to 27.5% in 2023-24. Ignoring the COVID year, GoI’s total expenditure to GDP ratio has increased from 10.5% in 2014-15 to 12.9% in 2023-24. There has been a tangible increase in the share of capital expenditure in GoI’s total expenditure, from 11.8% in 2014-15 to 21.4% in 2023-24. Correspondingly, share of revenue expenditure has fallen. Within revenue expenditure, there has been an emphasis on reducing the share of subsidies in GoI’s revenue expenditure by better targeting and delivery to the intended beneficiaries through DBT.
With respect to GoI’s fiscal imbalance, there was a major slippage in 2020-21 after which there has been a steady stepwise improvement. GoI’s fiscal deficit to GDP ratio fell from a peak of 9.2% in 2020-21 to 5.6% in 2023-24. The quality of fiscal deficit has also improved as reflected by a fall in the ratio of revenue deficit to fiscal deficit from 76% in 2017-18 to 46.3% in 2023-24. GoI’s debt-GDP ratio has also fallen from its peak level in 2020-21.
Currently, GoI’s finances appear to be on a strong footing with its tax and non-tax revenues showing buoyant performance, structure of expenditures shifting more towards capital spending and fiscal imbalance improving significantly.