The proportion of revenue receipts and total budgetary receipts as a percentage of GSDP increased during the period 2002-2007 and declined during 2008-14. Explain the factors that contributed to such a trend.

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The Fluctuation of Revenue Receipts as a Percentage of GSDP in India (2002-2014)

Introduction:

The question focuses on the fluctuating trend of revenue receipts and total budgetary receipts as a percentage of Gross State Domestic Product (GSDP) in India between 2002 and 2014. This requires a primarily factual and analytical approach, examining economic factors and government policies that influenced this trend. Understanding this fluctuation is crucial for assessing the fiscal health and resource mobilization capacity of Indian states during this period. While precise data for each state isn’t readily available in a single source, we can analyze general macroeconomic trends and policy changes that likely contributed to the observed pattern.

Body:

1. Factors Contributing to the Increase (2002-2007):

This period witnessed robust economic growth in India, fueled by significant investments in infrastructure, services, and manufacturing. Several factors contributed to the rise in revenue receipts as a percentage of GSDP:

  • High Economic Growth: The high GDP growth rate translated into higher tax revenues from income tax, corporate tax, and indirect taxes like GST (though GST was introduced later, similar indirect taxes existed). A larger economic pie meant larger tax collections.
  • Increased Tax Base: Economic expansion led to an increase in the number of taxpayers, broadening the tax base and contributing to higher revenue collection. This was particularly true for indirect taxes, which are levied on consumption.
  • Improved Tax Administration: Efforts to improve tax administration, including better enforcement and technological advancements, may have led to greater tax compliance and reduced tax evasion, boosting revenue collection.
  • Favorable Global Economic Conditions: The global economy was relatively stable during much of this period, contributing to India’s export-led growth and increased tax revenues from international trade.

2. Factors Contributing to the Decline (2008-2014):

The decline in the proportion of revenue receipts to GSDP during 2008-2014 can be attributed to several factors:

  • Global Financial Crisis (2008): The global financial crisis significantly impacted India’s economy, leading to a slowdown in growth and reduced tax revenues. Reduced economic activity meant lower consumption and investment, impacting tax collections.
  • Fiscal Stimulus Measures: Governments at both the central and state levels implemented fiscal stimulus packages to mitigate the impact of the crisis. While these measures were necessary, they increased government expenditure, potentially widening the fiscal deficit and reducing the proportion of revenue receipts to GSDP.
  • Decline in Global Commodity Prices: A decline in global commodity prices, particularly affecting India’s export-oriented sectors, reduced export earnings and consequently, tax revenues.
  • Implementation Challenges: Challenges in implementing new tax reforms or effectively collecting existing taxes could have also contributed to the decline. Tax evasion and avoidance remained significant concerns.

3. Data Limitations and Caveats:

It’s important to acknowledge that precise state-level data

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for this period might be fragmented or inconsistently reported. This analysis relies on general macroeconomic trends and policy changes. A more detailed analysis would require accessing individual state budgetary data and accounting for variations in state-specific economic conditions and policies.

Conclusion:

The fluctuation in the proportion of revenue receipts and total budgetary receipts as a percentage of GSDP between 2002 and 2014 reflects the interplay of various economic factors and government policies. The period 2002-2007 benefited from strong economic growth and improved tax administration, while the 2008-2014 period was significantly impacted by the global financial crisis and subsequent policy responses.

Moving forward, a holistic approach is crucial. This involves strengthening tax administration, broadening the tax base, improving tax compliance, and implementing efficient and equitable tax policies. Diversifying revenue sources beyond taxation, promoting sustainable economic growth, and focusing on fiscal prudence are also essential for ensuring long-term fiscal stability and achieving sustainable development goals. A robust and transparent fiscal framework, coupled with effective monitoring and evaluation mechanisms, is crucial for ensuring that revenue mobilization efforts contribute to inclusive and equitable growth.

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