India’s NEW welfare economy

ET ascribes it directly to the new buoyancy in tax collections. There may have been other reasons too, like removing India’s widespread economic backwardness outside the urban areas becoming imperative after the deficiencies were felt holding India back in the last few years. The fact is that social sector spending is going up in the 12th plan, starting from 2012-13 to FY2018. As a percent of GDP it will move from 6.6% this year to 8.1% of GDP as an average over the 5 plan years.

India’s GDP growth for the plan period has been cut to 8.5% from 9.5% in the proposed plan but Tax revenues as percent of GDP which were just 7.4% this current year (FY2011-12) will move to an average of 8.1% for the period till March 2018 to a peak of 8.9% in 2017-18. Plan execution will be monitored more publicly this time, with tracking online showing what allocations have been done and what are yet to be done, also tracking execution.

Even with the new GDP growth estimates of 7.2% this year and 8% in FY2013 the growing tax revenues will be part of the plan and thus the spending. Of course long time observers of the Indian economy may not put that much faith by the fiscal deficit targets planned to go down to 3% esp as these spending imperatives apart from the $2.5 tln needed for Infrastructure negate any likelihood of pla spending being reduced. The DTC and GST regimes will be in place by the end of this fiscal year and thus the buoyancy is already fctored in. india has been growing its tax pie throughout the eleventh plan, including the dull years in 2007 and now FY2012 for which Q1 has reported 17% growth in Advance taxes tuill June

In the revised plan documents, the non plan spending over the next 5 years has been reduced to 7.4% by FY2017 from 9% in the first year i.e. FY2013