Strong Recovery can boost the Tax Revenue

 (GS 3, Economics, The Hindu, Indian Express) 

News/ Context: Indian government is  expecting the tax revenue for current financial year 2000 2122 to be  10% above the budget, Beating forecast for the first time in 4 years as the economic powers back towards free pandemic labels. 

The 2021-22 Budget ( presented On 1st February 2021) estimated that for the financial year 2021-22 (starting from 1st April 2021 to 31st march 2022) the tax revenue collection will be 15.45 lakh crore. It is going to be 10% more than what was estimated as per tax officials. 

Tax revenues have been below projections ever since 2017-18 as the economy lost momentum even before COVID-19 and then slipped into a deep recession.

But now retail sales have picked up and exports are surging at a record rate, suggesting it is rebounding faster than anticipated after a devastating second wave.

India’s economy grew 20.1% between April and June, versus a 24.4% contraction during the same period last year. Activity levels have improved a lot. All indicators are showing a faster-than-anticipated recovery. 

Explained the percentage game: Here one thing to understand is that when we say the GDP  for a quarter has increased to 20% which is like record growth, is true in terms of percentage but that the absolute value of production is still the same as it was earlier before covid. We can take an example to understand this. Supposedly the GDP in the first Quarter ( April,May, June of 2019) of the financial year 2019-20 is 100. This GDP went down say to the level of 80 in the first quarter (April,May,June of 2020) of the financial year 2020-21, because of  Covid. Then it will be said that GDP for the first quarter of 2020-2021 is reduced to 20%, or we got a negative GDP growth of 20% in the first quarter of 2020-21. And now obviously things would be coming better with the ease in restriction/lockdown and our economy will be proceeding towards normal. Say now that the GDP in the first quarter of 2021-2022 ( (April,May,June of 2021) is 100 again as it was earlier in in the first Quarter of 2019-2020. This time it will be said as we have achieved 25% growth in the first quarter of 2021-2022, but see the level of GDP in the absolute value terms is still 100  as it was earlier. This 25% growth has come because of a low base. It is called base effect. So the whole story can be summarised in two lines as GDP moved from 100 to 80, showing 20% negative growth and then again moved from 80 to 100, showing positive growth of 25%. Absolute value is still 100 as it was earlier. 

You can understand this when Ministry of statistics and programme implementation (MosPI) data shows “GDP at Constant (2011-12) Prices in Q1 of 2021-22 is estimated at ₹ 32.38 lakh crore, as against ₹ 26.95 lakh crore in Q1 of 2020-21, showing a growth of 20.1 percent as compared to a contraction of 24.4 percent in Q1 2020-21.

Government to get a good total from sale of Air India, other disinvestment and through the listing of LIC: India aims to raise ₹1.75 lakh crore in the current fiscal year through sales of stakes in state-run companies and is hoping the sale of Air India to the Tata Group will provide an impetus. The listing of state-owned Life Insurance Corp. could fetch up to a further ₹1 lakh crore, according to another official. “We are working very hard to complete the listing of LIC and we should be able to do it by March,” the third official said.

Rating agency Moody’s Investors Service this month upgraded its outlook on India to stable from negative, saying downside risks in the country and its financial institutions had eased.

plutus ias daily current affairs 28 Oct 2021