Question

Refer to the given text carefully:

Revenue receipts of the Union Government of India, consisting of tax revenue and non-tax revenue increased year-on-year by 14.5% in the financial year 2023-24, with robust growth in both tax and non-tax revenues. In spite of the global trend of widening fiscal deficit and increasing debt burden, India has remained on the course of fiscal consolidation. In the post-covid period, significant fiscal consolidation could be achieved largely due to buoyant government revenues. The favourable fiscal performance in the financial year 2022-23, emerged as the cornerstone of India’s macroeconomic stability. The fiscal deficit of the Union Government has been brought down from 6.4% of Gross Domestic Product (GDP) in the financial year 2022-23 to 5.6% of GDP in the financial year 2023-24, according to the data released by the Office of Controller General of Accounts (CGA). Strong growth in direct and indirect taxes on account of resilient economic activities and increased compliance meant that the tax revenues generated exceeded the budgetary estimates. Additionally, higher-than-budgeted non-tax revenue in the form of dividends from the Reserve Bank of India (RBI) has buffeted revenue receipts. In combination with restrained revenue expenditure, these buoyant revenues ensured lower deficits. A decomposition of the fiscal deficit over the past few years reveals that with a narrowing revenue deficit, a larger share of the fiscal deficit is being accounted for by capital outlay. This suggests that the productivity of borrowed resources has improved.

On the basis of the given text and common understanding, answer the following questions:

1. Differentiate between the two types of revenue receipts as indicated in the above text.   [3]
2. Elaborate the reasons behind reduction in fiscal deficit of India for the financial year 2023-24.  [3]

Answer 1

1. 1. Tax revenue receipt: Tax revenue receipts refer to the receipts of the government through taxes. These are the compulsory transfer payments imposed by the government on individuals, corporations, and other entities.
   2. Non-tax revenue: Non-tax revenue receipts refer to those revenue receipts of the government from sources other than taxes. These mainly consist of interest, dividends, fees, etc.
2. The fiscal deficit declined due to robust growth in direct and indirect taxes, driven by resilient economic activities and improved tax compliance. Furthermore, higher-than-anticipated non-tax revenue, particularly dividends from the RBI, boosted overall revenue receipts. In addition to this, controlled revenue expenditure also contributed to the reduction in the fiscal deficit.