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Economic Survey 2022-23 for UPSC | Chapter 3
Vision IAS

Government Finances and Fiscal Sustainability
In this chapter, we will discuss the state of government finances and the
sustainability of government debt
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Classification of Government Finances


Revenue Account: revenue receipts and revenue expenses



Capital Account: capital receipts and capital expenses

Revenue account includes core functions of the government, such as tax
revenue and non-tax revenue
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Capital expenses are
those that lead to the creation of assets, while revenue expenses are
mostly salaries, pensions, and interest payments on borrowings
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Now, the question is how to withdraw this
stimulus to avoid compromising growth and increasing vulnerability of
the vulnerable sections
...
However,
increasing taxes will put an additional burden on taxpayers, and cutting
down expenses will lead to vulnerable people feeling left out
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The government is on track to bring it down
gradually to achieve desirable fiscal deficit
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The fiscal deficit has been

declining in a sustained manner, and we are reasonably close to
meeting the targets set for ourselves
...

The reason we are able to meet our targets is due to certain budgetary
reforms, such as bringing below-the-line items to above-the-line items,
which has made the estimates of borrowing and spending more
realistic
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Achieving Fiscal Consolidation
One important reason that we are able to meet the targets is because of
certain budgetary reforms that we have undertaken
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One of the budgetary reforms was the abolition of plan non -bal
expenditure, the merger of the railway budget with the general budget,
and preponement of budget presentation date from 28 February to 1st
February
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Non-Debt Receipts of the Government
The non-debt receipts of the government include revenue receipts (tax
and non-tax) and non-debt capital receipts
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Tax Buoyancy and Elasticity
Last year, the government collected 20 rupees in tax, while this year it
collected 22 rupees
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With an increase in nominal GDP and taxes,
tax buoyancy is less than one
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Tax

buoyancy is high when taxes grow faster than revenue and the economy
grows
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54%, while taxes grew at an average of 11
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Post-GST,
the economy has grown by an average of around 9
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9%
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12, meaning taxes
have been more buoyant than economic growth
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Tax elasticity and tax
buoyancy are two concepts used interchangeably, with elasticity being a
general term and buoyancy representing sensitivity of taxes to
economic growth
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The share of personal income taxes as a proportion of
total tax collected by the government has increased
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The reasons for this could be
an increase in GDP, faceless assessment, an increase in employment, an
increase in tax base, less compliance cost, creation of more employment
opportunities, and information sharing between government
departments
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The income
tax department can now estimate the income of a taxpayer by analyzing
their GST returns
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GST Growth and Improved Tax Administration
GST collection has been growing at a faster pace than GDP, despite a
lower tax rate
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6%,
and the effective rate is 11%
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The broader tax base has resulted in higher
tax collection despite a fall in tax rates
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This can be attributed to the decrease in
disinvestment receipts and loans received by the government
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Reasons for Disinvestment Targets Not Being Met
One major reason for disinvestment targets not being met is the
economic pressure to sell assets at a certain value
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This is a real pressure that cannot be overcome by
political or employee pressure
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Government Expenses
The government's expenses include both revenue expenses and capital
expenses
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7% to 2
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Defense services, transport and highways, and
railways are the major components of capital expenses
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Interest payment is the biggest
component of total revenue expenses, and it has been increasing due to
more borrowing in the past few years
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States' fiscal deficits are supposed to be within three
percent of GDP as part of their FRBLs
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This was part of the Member Bharat package and also part of
the Finance Commission recommendations
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5 percent then 0
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5 then 0
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Plus, apart from that additional limits were
done to them by fiscal by finance commission also again because of
certain good expenses if they incur so states, therefore, we are going to
revise your borrowing limits upwards as well
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Central
government has improved central government has increased the
borrowing limits of states
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When we talk about other aspects of normal-corporate evidence which
is transferred to states, I'm sure everybody knows finance commission
transfers, they need the transport from center to states taxes center has
collected 100 rupees of tax out of that 50 rupees finance commission

says that dude 90 rupees the 10 rupees the cost of collection 90 rupees
is the net worth 0 taxes out of that 45 rupees finance commission says
that these are going to states as part of devolution from the remaining
45 finance commission recommends more devolution also foreign
grants some sector-specific grants so finance commission gives more
transfers to states apart from the simple devolution the normal
devolution that it recommends these are various ways in which center
gives money to states finance commission devolution finance
commission recommendation of grants under article 275
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