Economic Survey: India trails in taxes, govt spending

Country's tax receipts constituted 16.6% of GDP in 2013-14, expenditure on health and education stood at 5.1 %

India taxes and spends less as shares of its GDP than its peers as well as developed nations, the Economic Survey says.

The country's tax receipts constituted 16.6 per cent of its gross domestic product (GDP) in 2013-14, the lowest among ten countries studied. It was also the least in terms of the average tax-GDP ratio of OECD countries and emerging market economies that stood at 34.2 per cent and 21.4 per cent, respectively.
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India's expenditure on health and education was 5.1 per cent of its GDP in 2013-14, the lowest among the ten countries. Overall public expenditure constituted 26.6 per cent of the GDP in 2013-14.

India's spending and tax ratios are also the lowest among economies with comparable purchasing power parity adjusted GDP per capita like Vietnam, Bolivia and Uzbekistan. The ratios, respectively, stood at 28 per cent and 22.2 per cent, 43.3 per cent 25.5 per cent, and 33.4 per cent and 25.6 per cent for Vietnam, Bolivia and Uzbekistan for the latest year available.

India's shares of income and property tax in GDP, 5.6 per cent and 0.8 per cent, respectively, were also comparatively low, with the exception of China in the case of direct tax.

The government has made limited progress in increasing its taxing and spending capacity. India's tax-GDP ratio has increased by about 10 percentage points over the past six decades from 6 per cent in 1950-51 to 16.6 per cent in 2013-14.

However, it may not be appropriate to make such cross-country comparisons since there is a strong relationship between a country's fiscal capacity and its level of economic development.

  India's tax-GDP ratio is about 5.4 percentage points less than that of comparable countries in a sample of 77 nations. Similarly, India spends on average about 3.4 percentage points less on health and education vis-a-vis these countries.

"These stark findings can be seen as an indictment of the Indian development experience," the survey says. However, it adds that in most of today's advanced economies the big increase in fiscal capacity happened in response to two world wars. They also occurred in response to extreme crises like the Great Depression of the 1930s, which led to a sharp expansion of the welfare state and the need to finance it.

Independent India, the survey says, has not experienced shocks of such magnitude that exerted pressure to enhance state capacity.