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previous year. This of course is a tall order. The higher tax growth is assumed despite the big tax breaks on personal income taxes — the direct tax proposals will result in net revenue loss of R22,200 crore to be partially compensated by R7,525 crore net gain from the indirect tax proposals.
Among the taxes, service has been driving growth in the economy but its share in the exchequer is still low. Service tax collection is budgeted at R2.16 lakh crore for 2014-15, which is 30% higher than the revised estimate of last year, but it is just 16% of the overall tax receipts whereas the sector contributes close to 60% to the national GDP. Also, the assumption that corporate tax will grow by about 15% is a bit unrealistic given that two years of economic slowdown has roiled corporate balance sheets and many are jostling with high debt.
On top of this, the government also hopes to mop up R63,425 crore through disinvestment in PSUs such as ONGC and Coal India, which will be 145% of R25,841 crore mopped up last year.
However, the total expenditure as percentage of GDP will shrink slightly to 13.9% this fiscal compared with 14% last year. Much of the expenditure growth will be driven by growth-boosting capital spending budgeted at R2.27 lakh crore (1.8% of GDP) for 2014-15, which will be 18.8% higher than R1.9 lakh crore (1.7% of GDP) last fiscal.
The optimism on the restraining spending also comes from a leash on subsidies — the total subsidy bill is budgeted to rise to R2.6 lakh crore or 2% of GDP compared to R2.56 lakh crore (2.25% of GDP) last year. This is being possible as petroleum subsidy is projected to shrink to R63,427 crore this fiscal from R85,480 crore last year as diesel prices are being gradually raised to bring them closer to market rates. Food subsidy is likely to rise significantly to R1.15 lakh crore as Food Security Act has to be implemented while fertiliser subsidies are to rise slightly to R72,970 crore this year compared with R67,971 last year.