Direct collections are budgeted to grow 12.7% in FY21 compared to 9% in FY20 (RE).
Given the economic slowdown, the government’s tax target assumptions for FY21 are very ambitious. Gross tax collections are assumed to grow to 12% in FY21 as compared to 4% in the current fiscal. The budget assumes a tax buoyancy of 1.2 for FY21 as compared to 0.5 and 0.8 over the last two years. To bridge the gap on the receipts side, the government relies on a significantly higher disinvestment target of Rs 2.1 lakh crore, with the LIC and IDBI stake sale, higher telecom receipts and Rs1.5 lakh crore as dividends and profits from Reserve Bank of India and state-owned companies.
Direct collections are budgeted to grow 12.7% in FY21 compared to 9% in FY20 (RE). This is despite Rs40,000 crore tax forgone from the reduction in income tax cuts. Though the government has cut personal income tax rates, it is unlikely to boost consumption demand significantly given that only 7% of India’s working age population pays tax, and more than 75% of the tax collections are paid by the top-5% of the tax payers, who have a high propensity to save.
The government’s expenditure is likely to grow 13% in FY21, with the bulk of the increased expenditure in agriculture and infrastructure. While growth in revenue expenditure is expected to slow down, overall capex is budgeted to increase 18% in FY21. Higher capex allocation will improve productivity and raise the growth potential in the medium-term. However, the budget makes way for higher allocations on some of the flagship programmes such as Pradhan Mantri Gram Sadak Yojna, Pradhan Mantri Krishi Sinchai Yojna, Pradhan Mantri Awas Yojna, and Pradhan Mantri Kisan Samman Nidhi.