Interim Budget 2019: NDA got more taxes from individuals than UPA

Share of tax revenues in GDP is set to cross the 12 per cent mark in 2018-19, a rise of almost two percentage points.

The National Democratic Alliance (NDA) government under Narendra Modi has presented five Budgets so far. How do they compare with those presented by the United Progressive Alliance (UPA) government under Manmohan Singh in two stints? 

UPA-I had five Budgets from Palaniappan Chidambaram and UPA-II had four Budgets from Pranab Mukherjee and one from Mr Chidambaram. All the five Budgets under Mr Modi’s NDA were presented by Arun Jaitley. The revised numbers for his fifth Budget are not yet available, but the deviations from the Budget Estimates to be seen on February 1, hopefully, would not be too significant to alter the broad trend. 

On fiscal consolidation efforts, finance ministers under both the regimes have broadly adhered to the goal of reining in the fiscal deficit, with some slippages. The differences, however, have been quite noticeable in the manner of their spending and in the sources they have tapped for raising revenues. 

On subsidies, for instance, Mr Chidambaram’s performance between 2004 and 2008 appeared impressive. From a subsidy expenditure of 1.6 per cent of gross domestic product (GDP), incurred by Jaswant Singh in 2003-04, Mr Chidambaram brought it down to 1.4 per cent by 2007-08. But this reduction was achieved largely through accounting jugglery. When the jugglery ended and the need arose for hiking the minimum support prices for agricultural crops and providing for higher costs on imported fertilisers, the share of subsidies in GDP shot up to 2.35 per cent in 2008-09. 

In his Budget speech for 2008-09, Mr Chidambaram said: “I acknowledge that significant liabilities of the Government on account of oil, food and fertiliser bonds are currently below the line. This accounting arrangement is consistent with past practice. Nevertheless, our fiscal and revenue deficits are understated to that extent. There is a need to bring these liabilities into our fiscal accounting. As a first step, I have shown these liabilities clearly in Budget At a Glance.”

In contrast, Mr Mukherjee was quite transparent about the need to raise expenditure on subsidies. By the time he presented his last Budget for 2012-13, the share of subsidies in GDP had gone up to 2.59 per cent. Mr Chidambaram, who returned to present the final Budget for UPA-II in February 2013, brought the subsidies expenditure down marginally to 2.27 per cent of GDP. 

Mr Jaitley’s five Budgets have seen a slow but steady decline in subsidies expenditure as per cent of GDP —from 2.07 per cent in 2014-15 to 1.5 per cent in 2018-19. Of course, the 2018-19 number may be revised later this week and show a slippage for a variety of reasons. And this slippage may be over and above the deferment of some subsidies payment to the following year. But the story of subsidies in the last 15 years is that no government has been able to bring it down significantly in a sustainable manner. 

On defence, the expenditure as per cent of GDP has seen a gradual decline over the last decade and a half. From 2.18 per cent of GDP in 2003-04, defence expenditure has gradually fallen to 1.5 per cent in 2018-19. Mr Chidambaram and Mr Mukherjee kept the defence spend between 2.4 and 1.8 per cent of GDP in each of their Budgets, but Mr Jaitley’s five Budgets saw a decline in almost every year – from 1.75 per cent in 2014-15 to 1.5 per cent in 2018-19. Neither the UPA nor the NDA has been aggressive in defence spending in these 15 years.

The decline in capital expenditure in this period is even more worrying. Jaswant Singh had raised capital spending to a high of 3.96 per cent of GDP in 2003-04. Mr Chidambaram kept it reasonably high at 3.6 per cent in his first Budget in 2004-05, but allowed it to slide to less than 2 per cent in all his subsequent Budgets, except the one he presented for 2007-08, when capital spending was pegged at 2.4 per cent of GDP. 

Mr Mukherjee, too, could raise capital expenditure to above 2 per cent of GDP only once in 2010-11, but in all his other Budgets the figure remained at around 1.7 per cent. Mr Jaitley made no difference to this trend and allowed capital expenditure to hover between 1.6 and 1.9 per cent of GDP in his five Budgets. 

On taxation efforts, Mr Chidambaram did well in his first four Budgets under UPA-I, by raising gross tax revenues from 9.57 per cent of GDP in 2003-04 under Jaswant Singh to 12.11 per cent of GDP in 2007-08. The need to provide tax concessions in the wake of the global financial meltdown meant that Mr Chidambaram’s last Budget under UPA-I saw a dip in tax revenues to 10.98 per cent of GDP in 2008-09. 

Budgets under UPA-II kept the share of gross tax revenues in GDP at around 10 per cent. But a sharp pick-up took place in the final four years of the NDA Budgets presented by Mr Jaitley and the share of tax revenues in GDP is set to cross the 12 per cent mark once again in 2018-19, a rise of almost two percentage points. 

But it is important to note that this increase has taken place largely on account direct tax revenues. In these 15 years, the share of direct tax revenues in GDP has gone up from around 4 per cent to over 6 per cent, while that of indirect tax revenues has remained broadly unchanged. 

This is partly because the contribution of customs revenue has seen a steep decline in this period. During UPA-I, it ranged between 1.8 per cent and 2.1 per cent of GDP. During UPA-II, customs revenue’s share in GDP ranged between 1.3 per cent and 1.8 per cent of GDP. And during Mr Jaitley’s Budgets, it has seen a further decline from 1.5 per cent of GDP in 2014-15 to 0.8 per cent in 2017-18, which is expected to fall further to 0.6 per cent of GDP in 2018-19. 

Budgets under UPA-I and UPA-II have been different from those under the NDA in respect of corporation tax and personal income-tax revenues as well. For corporation tax revenues, their share in GDP has seen a steady rise from 2.31 per cent in 2003-04 to 3.9 per cent in 2008-09, before it came down marginally to 3.5 per cent under Mr Chidambaram’s Budget for 2013-14. In contrast, Mr Jaitley’s five Budgets have steadily brought down this ratio — from 3.44 per cent in 2014-15 to 3.3 per cent in 2018-19. 

The trend is somewhat different for personal income-tax revenues. Under UPA-I and UPA-II Budgets, their share in GDP stayed below 2 per cent, except in two years — 2.1 per cent in 2007-08 and 2.12 per cent in 2013-14. But under the NDA Budgets, this share has increased every year — from 2.1 per cent in 2014-15 to 2.62 per cent in 2017-18 and an expected 2.81 per cent in 2018-19.

It would appear that India Inc’s tax contribution to the exchequer has grown at a slower pace during the NDA regime, compared to the rate at which they grew during the 10 years of the UPA rule. In contrast, personal income-tax revenues have been a key factor in the rise in direct tax collections during the NDA regime. This is largely an outcome of improved tax compliance and coverage. But can this alone be a sustainable area of growth for meeting the government’s revenue requirements in the coming years?