Govt’s capex allocation poised to slow marginally in 2018-19
Despite an increase in the gross tax revenue-to-gross domestic product (GDP) ratio because of a widening tax base, the government’s capital expenditure allocation is set to slow marginally in the next fiscal. That’s because it has to significantly raise the outlay on food subsidies, and increase pensions and salaries due to the recommendations of the 7th Pay Commission.
In its Medium Term Expenditure Framework statement laid before Parliament under the Fiscal Responsibility and Budget Management Act, 2003, the finance ministry said any shocks to tax collections because of the introduction of the Goods and Services Tax (GST) will be absorbed in 2017-18 and hence the tax-to-GDP ratio will remain at the level of 2016-17 at 11.3%.
“However, going forward in the years 2018-19 and 2019-20, the gains from expansion of the tax base due to the introduction of GST and the increased surveillance post demonetisation will ensure tax-GDP ratio will increase by 30 basis points in each of the above FYs in question,” the finance ministry said in the statement. One basis point is one-hundredth of a percentage point.
Tax-to-GDP ratio is projected to be 11.6% in 2018-19 and 11.9% in 2017-18 (BE) Health Education Agriculture
Rural development
Transport Defence 2018-19 (P) 2019-20 respectively. The Centre has assumed nominal GDP growth of 12.3% in both the years against 11.75% assumed for 2017-18.
The finance ministry has projected that capital expenditure will expand 10.1% in 2018-19 from 10.7% in 2017-18, before touching 14.4% in 2019-20.
However, revenue expenditure is set to rise by 8.8% in 2018-19 2019-20 (P) against 5.9% in 2017-18 and 10.3% in 2019-20.
In contrast, the central government’s salary bill will jump by 11.8% to ₹1.38 lakh crore in 2018-19, while its pension burden will rise by 10% to ₹1.4 lakh crore. The salary and pension bills rose 4.8% and 2.4% respectively in 2017-18 after the recommendations of the 7th Pay Commission were partially implemented.