India faces `silent fiscal crisis’ on tax gap, Modi adviser Says


By Archana Chaudhary

India is facing a silent fiscal crisis owing to a shortfall in tax revenues, and the government’s budget suggests it may have grossly underestimated the problem.

That’s the assessment of Rathin Roy, a member of the Prime Minister’s Economic Advisory Council, who said the budget presented this month won’t help fully reverse the problem in the current financial year that began April 1.


Finance Minister Nirmala Sitharaman lowered the budget deficit target for the period to 3.3% of gross domestic product from 3.4% previously, despite expectations for a stimulus to revive weak economic growth. Instead, she sought to narrow the gap by raising taxes on the wealthy, selling stakes in state-run companies and demanding more dividend from the central bank.

“At the heart of the crisis is a shortfall in tax revenues,” said Roy, who is director of the National Institute of Public Finance and Policy in New Delhi. “It is mainly due to a shortfall in GST revenues (but also personal income tax revenues), compared to the numbers presented in the revised estimates.”

The government estimates to raise 25.5 trillion rupees ($370 billion) as taxes in the current fiscal year, according to the budget document. However, estimates in the Economic Survey published separately by the Finance Ministry show that provisional tax revenue, at 20.8 trillion rupees, missed the revised estimate of 22.5 trillion rupees for the year ended March 31.

Roy separately questioned the government’s 3.4% fiscal deficit numbers for the last fiscal year, citing a revenue-GDP ratio of 8.2%, which was a full percentage point lower than the revised estimates.

“How is this done given the stunning shortfall in the tax-GDP ratio,” he asked.

Sitharaman had earlier responded to criticism about the budget, saying “every number” in the spending plan is authentic and there need not be any speculation.

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