In one of my earlier posts (dated May 28), I promised to come back with the remaining part of the story – where the money collected as Tax goes.
With little effort, one can find out the necessary details. It took me some time to arrange the data the way I understand. Let me confess that I am not an expert to analyze this. My effort to understand this is merely from a layman’s perspective. Any expert comment from any direction is always welcome.
The above charts indicate the details of Income and Expenditure of our government. I took the published data for the year 2007-2008 for illustration. I am sure any other recent year would show a similar trend.
Let us see, from where Government generates its income –
. For the financial year under consideration, the total income was Rs.709,373 Crores.
. Maximum amount (61% of the total income) is generated thru’ collection of Taxes
. Under tax, Corporation tax, Excise duty and Income tax are the toppers
. As an individual, we are directly affected by the Excise Duty and Income tax, which adds up to 35% of the total income
. The next highest source of income is Debt capital, gathered to bridge the gap between earnings and expenses – in more technical terms it is called ‘Fiscal Deficit’. That means, in that particular year, Government had to borrow Rs.143,653 Crores from various sources to meet the ends. As all of us understand, this amount attracts interest and creates a large hole in the pocket. Its impact is seen in the Expense chart.
The important aspect I would like to underline is the high dependency on Tax. In fact, other than Tax, there is hardly any other source of income. Another highlight is the high % of borrowing. 20% of the income is from borrowing. It was 3.17% of that year’s GDP.
Now let us look at the expense chart –
. In both Plan and Non-plan segment, the highest chunk goes as Revenue expenditure. As the definition goes, it is not for generation of assets.
. Non-plan expenditure is considerably higher than Plan expenditure
. 24% of the total income goes in repaying the Premium and Interest of loans earlier taken. That means, whatever we borrowed, all of that and little more goes in repaying the earlier loans. If we relate it to individuals, it looks like withdrawing from one Credit card account to pay outstanding of another. We all know, how dangerous it is. It is also very difficult to come out of this cycle.
. Another 10% goes in subsidies
According to the Economic Survey, India was investing 22.1% of its income to the economy during the first reform five reform years, 1992-97. This declined to 21.7% in the last five years. That means, most of the money is spent in running the government machinery. It is like running a power plant primarily to cater to its own needs. Hardly anything comes out as a net output.
To relate this to our own life, for a moment, let us consider this to be our monthly balance sheet. That means, we are borrowing every month and spending a considerable sum in repaying the earlier loans. To come out of this, there are few ways –
. Earning more
. Cutting down unnecessary expenses
. Minimizing borrowing
. Spending / Investing money more judiciously to generate more income in future
I know it is easy to manage if our Income goes up. But in most of the cases, we manage our expanses to come out of the deadly cycle.
The same is applicable to government. Instead of taxing the already burdened salaried, middle class, either it should find out new taxpayers or improve the efficiency of its machinery to generate more output with a given input. Otherwise, the continued deficit will put the improvement projects into the backseat. No need to say, it will have negative impact in coming years.
Some of the following Links are worth visiting –
http://timesofindia.indiatimes.com/Business/Lower_fiscal_deficit_can_sustain_low_interest_regime/articleshow/2822368.cms
http://www.rediff.com/money/2005/apr/12fiscal.htm
http://www.theindiastreet.com/2008/05/india%E2%80%99s-fiscal-deficit-is-the-highest-in-the-world.html
http://www.livemint.com/2008/07/01093536/Bleak-fiscal-current-account.html
http://www.thehindubusinessline.com/2003/12/12/stories/2003121200030800.htm
http://www.crisil.com/india-budget-analysis/index.html#
With little effort, one can find out the necessary details. It took me some time to arrange the data the way I understand. Let me confess that I am not an expert to analyze this. My effort to understand this is merely from a layman’s perspective. Any expert comment from any direction is always welcome.
The above charts indicate the details of Income and Expenditure of our government. I took the published data for the year 2007-2008 for illustration. I am sure any other recent year would show a similar trend.
Let us see, from where Government generates its income –
. For the financial year under consideration, the total income was Rs.709,373 Crores.
. Maximum amount (61% of the total income) is generated thru’ collection of Taxes
. Under tax, Corporation tax, Excise duty and Income tax are the toppers
. As an individual, we are directly affected by the Excise Duty and Income tax, which adds up to 35% of the total income
. The next highest source of income is Debt capital, gathered to bridge the gap between earnings and expenses – in more technical terms it is called ‘Fiscal Deficit’. That means, in that particular year, Government had to borrow Rs.143,653 Crores from various sources to meet the ends. As all of us understand, this amount attracts interest and creates a large hole in the pocket. Its impact is seen in the Expense chart.
The important aspect I would like to underline is the high dependency on Tax. In fact, other than Tax, there is hardly any other source of income. Another highlight is the high % of borrowing. 20% of the income is from borrowing. It was 3.17% of that year’s GDP.
Now let us look at the expense chart –
. In both Plan and Non-plan segment, the highest chunk goes as Revenue expenditure. As the definition goes, it is not for generation of assets.
. Non-plan expenditure is considerably higher than Plan expenditure
. 24% of the total income goes in repaying the Premium and Interest of loans earlier taken. That means, whatever we borrowed, all of that and little more goes in repaying the earlier loans. If we relate it to individuals, it looks like withdrawing from one Credit card account to pay outstanding of another. We all know, how dangerous it is. It is also very difficult to come out of this cycle.
. Another 10% goes in subsidies
According to the Economic Survey, India was investing 22.1% of its income to the economy during the first reform five reform years, 1992-97. This declined to 21.7% in the last five years. That means, most of the money is spent in running the government machinery. It is like running a power plant primarily to cater to its own needs. Hardly anything comes out as a net output.
To relate this to our own life, for a moment, let us consider this to be our monthly balance sheet. That means, we are borrowing every month and spending a considerable sum in repaying the earlier loans. To come out of this, there are few ways –
. Earning more
. Cutting down unnecessary expenses
. Minimizing borrowing
. Spending / Investing money more judiciously to generate more income in future
I know it is easy to manage if our Income goes up. But in most of the cases, we manage our expanses to come out of the deadly cycle.
The same is applicable to government. Instead of taxing the already burdened salaried, middle class, either it should find out new taxpayers or improve the efficiency of its machinery to generate more output with a given input. Otherwise, the continued deficit will put the improvement projects into the backseat. No need to say, it will have negative impact in coming years.
Some of the following Links are worth visiting –
http://timesofindia.indiatimes.com/Business/Lower_fiscal_deficit_can_sustain_low_interest_regime/articleshow/2822368.cms
http://www.rediff.com/money/2005/apr/12fiscal.htm
http://www.theindiastreet.com/2008/05/india%E2%80%99s-fiscal-deficit-is-the-highest-in-the-world.html
http://www.livemint.com/2008/07/01093536/Bleak-fiscal-current-account.html
http://www.thehindubusinessline.com/2003/12/12/stories/2003121200030800.htm
http://www.crisil.com/india-budget-analysis/index.html#
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