South Asia

India's tax windfall gives PM Modi scope to spend more on welfare

Published: 13:15, 9 November 2023

The Indian government is poised to surpass its initial tax revenue projections for the current fiscal year, providing Prime Minister Narendra Modi with additional fiscal flexibility to invest in rural development initiatives, strategically timed ahead of upcoming elections.

According to Bloomberg Economics, the central government's total receipts are expected to exceed the budgeted amount by approximately 1.9 trillion rupees ($22.8 billion) by the end of March 2024, equivalent to 0.6% of the gross domestic product (GDP). Standard Chartered Plc. predicts a slightly lower but still significant surplus, forecasting that revenue will surpass budgeted figures by 0.2%-0.3% of GDP.
This unexpected windfall in revenue empowers Modi's administration to embark on a populist agenda as voters in five states participate in elections this month, setting the stage for the general elections in 2024. During a public rally on November 4, the prime minister pledged to extend a popular free food program, which distributes 5 kilograms of wheat or rice monthly to 800 million Indians, for an additional five years.
Capitalizing on the surplus, the government has also bolstered subsidies for cooking gas and fertilizers. Additionally, it is contemplating further support measures for economically disadvantaged households, including increased cash assistance to small farmers and subsidies for select home loans.
The robust tax collection this year, propelled by economic expansion, has exceeded expectations. The Ministry of Finance reported an 18% year-on-year increase in India's direct tax collection from April 1 through October 9. Moreover, the central bank's increased profit transfers to the government have further enriched public coffers.
Addressing concerns about the fiscal impact of extending the free food program, a finance ministry official affirmed this week that Modi's announcement will not adversely affect the deficit in the current and upcoming fiscal years.