The Congress party has for long denied the fact that India has undergone healthy economic growth under the Modi government despite hostile global conditions. The party has also been reluctant to admit that tax buoyancy has been better under Modi government, and tax to GDP ratio has grown exponentially. However P Chidambaram, senior Congress leader and former finance minister has accepted the GDP growth and tax buoyancy has been better under Modi government. In a press conference in Chennai, Chidambaram said that the size of the Indian economy is 200 lakh crore rupees in nominal terms and expected to grow at 12 percent to reach 4000 crore rupees in next 5 years.
He also admitted that tax revenues are growing at percent a year. The expenditure of central and state governments put together is 60 lakh crore rupees and given the fact that revenues are growing at 18 percent a years, the amount available for expenditure will double in next five years, said Chidambaram. He admitted these facts while he explained how a future Congress government could easily procure the money required for the NYAY scheme. Whether the government has enough financial resources to spend the money on scheme given the fact that total fiscal deficit (center and state combined) is more than 12 lakh crore rupees is arguable, but at least Chidambaram admitted the fact that GDP growth and tax revenue have been good under the Modi government.
The tax to GDP ratio under the Modi government have been 10.6, 11.2, 11.6 percent for FY 16, FY 17, and FY 18. The budgeted estimate of tax to GDP ratio for FY 19 is 12.1 percent. The Modi government implemented many necessary macroeconomic reforms like Insolvency and Bankruptcy Code (IBC), and GST which will drive the GDP growth and tax collections.
The implementation of GST by the Modi government also helped in increasing direct tax compliance as expected by policymakers. The finance minister wrote in a Facebook post “The implementation of GST as a single consolidated tax has had a significant impact even on direct taxes. Those who have disclosed a business turnover for the GST now find it difficult not to disclose their net income for the purposes of income tax. Last year, the impact of GST on direct tax collection was not visible. Since GST had been imposed in the middle of the year, it will be more apparent this year.” The prophecy of Jaitley came true as corporate tax collection and overall direct tax collection have been growing at a good pace since the implementation of GST. The direct tax department is now able to access GST payments of companies and tally it with personal and corporate taxes paid by the promoters. This has significantly reduced the chance for companies to cheat the government. Therefore, the taxes paid by the unlisted companies have increased exponentially since the implementation of the GST.
The implementation of GST alone would increase the GDP growth by 1-2 percent in the upcoming years. The macroeconomic picture of the country is very stable and healthy, and economic growth would be sustained on this. P Chidambaram was right to admit that economic growth and tax collection have been good under Modi government. He should have also admitted that macroeconomic reforms implemented by Modi government would be the reason behind 10-12 nominal GDP growth estimated by him.
