Medium-term Expenditure Framework Statement: ‘Tax-GDP ratio to widen in next two years on GST, note ban’

August 11,2017

The finance ministry expects India’s tax-to-GDP ratio to expand in the next two years on accounts of increased tax surveillance post demonetisation and implementation of the Goods and Services Tax. The government also expects to eliminate subsidy on LPG cylinders by March-end 2018 and to pare it on kerosene, the ministry said in the Medium-term Expenditure Framework Statement (MTEF) tabled in Parliament on Thursday.
The tax-to-GDP ratio is expected to rise to 11.9 per cent by 2019-20, from an estimated 11.6 per cent in 2018-19 and 11.3 per cent in 2017-18. The total expenditure of the central government is likely to touch Rs 26 lakh crore in FY20, up from Rs 21.46 lakh crore estimated for the current fiscal.
The Centre’s capital expenditure is expected to rise 25 per cent to Rs 3.9 lakh crore in 2019-20, with defence outlay alone jumping 22 per cent, as per the statement. The government is required to release this statement as per the Fiscal Responsibility and Budget Management Act, 2003. The capital expenditure is projected at Rs 3.09 lakh crore in the current fiscal and revenue expenditure at Rs 18.36 lakh crore, taking the total to Rs 21.46 lakh crore.
However, its subsidy bill for petroleum sector is expected to fall while food subsidies will increase. Outgo on fertiliser subsidy is projected to be flat at Rs 70,000 crore between the current fiscal and 2019-20. Food subsidy bill will rise to Rs 1.75 lakh crore in 2018-19 and Rs 2 lakh crore in the following fiscal. Petroleum subsidy would drop to Rs 18,000 crore in 2018-19 from Rs 25,000 crore in current fiscal and to Rs 10,000 crore in 2019-20.
“…The Government has decided to increase the cost of LPG cylinders at Rs 4 per month. The ultimate aim of the Government is to eliminate the subsidy on LPG cylinders by end March 2018. After the successful implementation of direct benefit transfer for LPG, the government is now focused on reducing kerosene subsidies,” the statement said. Defence spending is expected to rise from Rs 91,580 crore in the current fiscal to Rs 1,01,137 crore in the next one year and Rs 1,11,706 crore in 2019-20.
The reduction in interest rates in the last year is expected to result in savings of around Rs 12,000 crore in terms of interest costs of borrowings. The government expects the interest rates to stay on the lower side for the next two years.
“Though interest payments were budgeted to be Rs 4,92,670 crore in 2016-17, the Provisional Actuals for interest payments in 2016-17 worked out to Rs 4,80,519 crore. This fall of interest payments by more than Rs 12,000 crore is indicative of the economy moving towards a more benign rate cycle. If this trend continues, it will have an impact not only on the government expenditure but also will have a salutary impact on the investment decisions of economic agents in the country,” it said.
Reference

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