Dubai: India's gross domestic product (GDP) growth is expected to remain around 6.9 per cent to 7 per cent in 2012-13 according to the latest government estimates. Overall expectations on growth drivers for the budget this year remain subdued.
Accordingly, direct and indirect tax collections are likely to post moderate expansion in the coming fiscal year unless measures are taken to increase tax rates and significantly widen the tax net.
While both measures could be highly inflationary in nature, analysts say the boosting of government revenues through the privatisation of public sector companies and the sale of telecom companies could come as a relief to the government.
However, these are constrained by market conditions. ICRA analysts argue that in addition to a widening of the tax base, a credible and sustainable roadmap for fiscal consolidation must involve a reduction in expenditure.
The current fiscal situation does not afford much space for providing a direct stimulus to growth through lower taxes or substantially higher spending in the event of a deeper-than-expected domestic slowdown or an external crisis.
Analysts argue that a credible mover towards fiscal consolidation may prompt the Reserve Bank of India (RBI) to start monetary easing in early 2012-13.
Economists expect the Union Budget for 2012-13 to raise the exemption limit for personal income tax, which would provide a limited boost to consumption spending. With economic growth unlikely to rebound sharply in 2012-13, direct tax collections are likely to experience moderate growth in the coming fiscal year.
