With the substantial reliefs being extended to taxpayers denting tax revenues—the largest stream of inflows into the exchequer—the Centre appears to be setting its sights on non-tax revenue instruments in the medium term. It recently rejigged the National Monetisation Pipeline 2.0 (FY26-FY30), by revising the mop-up target upward by 67% to Rs 16.7 lakh crore. A significant part of these funds would reach the exchequer in due course, as dividends or profit share.
A day after presenting the Budget FY27 in Parliament, Finance Minister Nirmala Sitharaman said the pace and direction of disinvestment should set the tone for revenue generation, and added that there would be “a lot more on disinvestment, by bringing more public float from CPSEs (central public sector enterprises) and asset monetisation”. Under “miscellaneous capital receipts”, which includes proceeds from the sale of CPSE equities, Rs 80,000 crore is projected to be raised in the next fiscal year, compared with barely Rs 35,000 crore mopped up so far in the current fiscal year.
“Non-tax revenues,” as specified in the Budget, have grown at much faster rates than tax receipts in recent years—by 40.8% in FY24, 33.5% in FY25, and 24.4% (revised estimates) in FY26. Unprecedented jumps in “surplus transfers” from the Reserve Bank of India have helped cushion the Centre’s fiscal position in recent years while ensuring the central bank remains well-capitalised. State-run oil marketing companies, which have benefitted from subdued oil prices, have also been generous with their dividend payouts.
These apart, financial and quasi-sovereign investment vehicles have of late emerged as significant dividend contributors. While CPSE disinvestment per se has faltered, faster assent monetisation is set to be reflected on Budget receipts too. The increased focus on non-tax revenues, and now also on non-debt capital receipts, marks the realisation that imposing fresh taxes—even selectively on the rich and wealthy—would be an unwise step at this juncture and prove counterproductive.
Sustainability Concerns
However, this strategy can’t be a long-term anchor of fiscal consolidation. Tax and non-tax receipts differ fundamentally: the former entails a mandatory payment obligation imposed by the government on individuals and businesses, with set timelines for the transfers. On the face of it, tax payments are unrequited in nature. Non-tax contributions to the government coffers include fees, fines, dividends, and profits from government-owned firms, assets, and services. These are largely voluntary in nature, exhaustible, and not as synchronised with the current state of the economy, as tax revenues are. For instance, the fee charged on the use of telecom spectrum, a sovereign resource, needs to be paid only when a firm chooses to acquire and use it. The state can’t ordain the sale of spectrum. Similarly, companies enjoy certain freedom and flexibility in deciding the quantum of dividends to pay shareholders and how to stagger the payouts.
The instant jump in non-tax receipts also results from the government’s persuasive power, as it is uniquely placed and empowered compared to other economic actors. Exercising these powers has its limits. Uneconomic dividend transfers could, for instance, limit the capacity of CPSEs to make fresh investments and debilitate their profitability sooner than later. Despite the relatively high growth of non-tax revenues, these are still a quarter of the Centre’s net tax receipts. A sustainable revenue strategy for the government must inevitably be driven by taxes. The objective must be to return to this proven revenue model as quickly as possible.