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Budget 2015: Balancing the Budget By Massively Overestimating Tax Collections


Yes, we missed Budget Estimates by a huge margin. But how are our estimates, in terms of growth over the previous year, compared to earlier times? Let’s take a look.


What this tells you:

  • Expectations of Gross Tax Revenue Growth are nearly 16%. This will be the highest growth number, if we achieve it, since 2012-13.
  • Customs duty collections are estimated at 10% growth. That’s fair and normal, but it doesn’t reflect the massive growth of India if we are to see a 15% growth in overall revenue (India is a net importer even if you removed oil and gold, so that part too will grow close to the economic growth rate)
  • Excise duty is expected to grow 24%. That’s the highest growth number since 2010-11 (where the economy was recovering from a global slowdown), with no specific reason for it grow. Why will everyone suddenly start manufacturing more things, and more by 24%? Out of the blue? This makes no sense whatsoever and seems tremendously high.
  • Service tax is supposed to grow at nearly 25%! Look, this sounds incredulous. The increase of Service Tax to 14% means many services will simply not declare their incomes. Such massive growth was also expected in the budget last year, but we’ve seen that we fell short by a massive 47,000 crore. Even the next year’s number looks unachievable.

Overall, even with these numbers (way too high in our estimate – gross tax growth will be 10% or whereabouts), there is a problem.

With a much higher allocation to states, the center will have “net” revenue growth (after giving  the states their share) of just 1.5%.

On the Expense side, costs are going to be higher due to salary increases (linked to CPI which is 5%) and then, everything else like Defence where the budget is up 10%. Some expenses have been passed on to the state, taking the budgeted allocations to only 90,000 cr. extra which is around 5% higher than last year.

We simply don’t think these numbers are feasible. The government will need to sell a lot more assets or cut expenditure massively to make the deficit numbers work, for we think the revenue from taxes is simply overestimated.


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