Direct taxes, which had increased steadily as a percentage of GDP over the 2000s, trended downwards. And the sharp downturn in productive activity — associated with cost-push inflation, visible in Table 3 — combined with tax concessions to tide over the recession to ensure that indirect taxes saw a steep fall. Meanwhile, government expenditure continued to be high, as Table 4 shows. Worryingly, while revenue expenditure increased as a percentage of GDP after 2008, aided by a sharp increase in subsidies that the graph also indicates, capital expenditure has gone in the opposite direction.
This indicates the second problem Chidambaram must deal with: The growth slowdown. Government capital expenditure being low, private investment must pick up the slack. But, as Table 5 shows, gross domestic savings have gone sharply down as a percentage of GDP, and gross domestic capital formation, too. At least some of the effects are moderated by the fact that foreign investment, including portfolio investment, has recovered from the shock of the financial crisis, as Table 6 shows. But that could reverse any time. As Table 7 shows, imports have outstripped exports, and the current account deficit is deep in the red. If foreign investment flows, too, were to turn negative, then India would be in a classic crisis. (Click here for tables)
You’ve reached your limit of {{free_limit}} free articles this month.
Subscribe now for unlimited access.
Already subscribed? Log in
Subscribe to read the full story →
Smart Quarterly
₹900
3 Months
₹300/Month
Smart Essential
₹2,700
1 Year
₹225/Month
Super Saver
₹3,900
2 Years
₹162/Month
Renews automatically, cancel anytime
Here’s what’s included in our digital subscription plans
Access to Exclusive Premium Stories
Over 30 subscriber-only stories daily, handpicked by our editors


Complimentary Access to The New York Times
News, Games, Cooking, Audio, Wirecutter & The Athletic
Business Standard Epaper
Digital replica of our daily newspaper — with options to read, save, and share


Curated Newsletters
Insights on markets, finance, politics, tech, and more delivered to your inbox
Market Analysis & Investment Insights
In-depth market analysis & insights with access to The Smart Investor


Archives
Repository of articles and publications dating back to 1997
Ad-free Reading
Uninterrupted reading experience with no advertisements


Seamless Access Across All Devices
Access Business Standard across devices — mobile, tablet, or PC, via web or app