A changing fiscal framework -Dipankar Dasgupta
The government’s announced fiscal policy stance and the fiscal regime it is running seem contradictory
There used to be a time — and this was well before India began to globalise — when each Union Budget announced sales tax increases on tobacco products, especially cigarettes. The demand for cigarettes being somewhat inelastic, the rise in tax was expected to be a shot in the arm for the revenue-starved government of our poor country.
Increase in excise duty
India is less poor now, having risen to the rank of an emerging market economy. Yet, COVID-19 has ushered in a cataclysm. As opposed to a Budget estimate of 3.5% for fiscal deficit, the revised estimates show a 2.7 times larger deficit of 9.5% for FY 2020-21. Moreover, a comparison of the government’s revised Budget estimates with the original Budget estimates reveals a fall in receipts from every source of taxation except excise. The revised Budget shows a rise of 94,000 crore on account of excise duties alone. Presumably, the increase comes from the much-debated excise duty increases on petroleum and diesel. As far as the Budget documents go, the excise duty rise will hardly compensate for the huge falls in other tax revenues. It is not surprising, therefore, that despite the excise rise, the fiscal deficit continues to be higher than the Budget estimate. In fact, the larger excise duty collection is not large enough to have significantly reduced the inflated fiscal deficit figure.
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The Hindu, 24 February, 2021, https://www.thehindu.com/opinion/op-ed/a-changing-fiscal-framework/article33916726.ece?homepage=true