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LATEST NEWS UPDATES | The Modi government is facing a serious cash crunch -- thanks to GST -Shoaib Daniyal

The Modi government is facing a serious cash crunch -- thanks to GST -Shoaib Daniyal

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published Published on Aug 21, 2019   modified Modified on Aug 21, 2019
-Scroll.in

More than a tenth of GDP is provided by government expenditure. This is (more) bad news for the Indian economy.

In 1773, the British Parliament passed the Regulating Act, appointing a governor general to oversee all of British India. This law marked the beginnings of the Central government of the British Raj, the single most significant institution to shape the Indian subcontinent for the next two centuries. It continues till today in independent India in the form of the Union government.

For an institution with such a long history, however, it is today facing a rather prosaic problem: a cash crunch. The main driver for this is falling tax revenue due to an underperforming Goods and Services Tax.

The Centre is contracting

The Union government in India is a behemoth, employing lakhs of people and responsible for collecting a lion’s share of the taxes that India’s people generate. However, this juggernaut is now slowing down. Total Union government expenditure as a proportion of the Gross Domestic Product fell from 13.9% in 2013-’14 to 12.2% in 2018-’19.

Not only is this fall significant, it is also abrupt: the Union government itself has been unable to predict it. On February 1, 2018, for example, the Union government estimated that total Union government expenditure for 2018-’19 would be 13% of the GDP, an increase from the previous year – and one that would break the falling streak.

The government’s estimate, however, was completely off the mark. Expenditure as a percentage of GDP actually fell in 2018-’19. The actual expenditure of the Centre was lower by Rs 1.31 trillion than the budget estimates.

What is driving this slowdown of the Union government: poor tax collection. The Centre’s share of taxes was 7.3% of the Indian GDP in 2013-’14. By 2018-’19 that number had dipped to 6.9%.

Like in the case of expenditure, there is also the problem of unpredictability. The estimated central government share of taxes as a percentage of GDP at the start of 2018-’19 was 7.9%. But it fell by a whole percentage point when actual taxes were counted up at the end of the financial year. This gap between estimates and actuals was the highest ever in India’s tax history and sent alarm bells ringing in the Union government.

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Scroll.in, 21 August, 2019, https://scroll.in/article/934066/in-charts-the-modi-government-is-facing-a-serious-cash-crunch-thanks-to-gst?fbclid=IwAR0ts0Qv8jogNvpEq63UFM3-sr39pY85Yo2vrYUFfhJJnjbKmMBkhq


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