Higher revenues needed to fund 9-9.5% GDP growth in 12th Plan

Higher revenues needed to fund 9-9.5% GDP growth in 12th Plan

The Commission has suggested the government to raise net tax-GDP ratio from 7.4 per cent in 2011-12 to 9.1 per cent by 2016-17, the terminal year of the 12th Five Year Plan.

Tax-Gross Domestic Product (GDP) ratio reflects the portion of taxes that the government collects as percentage of the GDP in a year. High ratio target means that government will have to raise tax rates and widen base to garner more revenue.

The 12th Plan (2012-17) proposes to raise the annual economic growth rate target to 9-9.5 per cent from 8.2 per cent in the current Plan and reduce the average fiscal deficit to 3.3 per cent from 4.9 per cent of the GDP during the same period.

During the full Planning Commission meeting last week headed by Prime Minister Manmohan Singh, the panel indicated that present level of resources would not be sufficient to expand the net of the social sector schemes in the country.

It suggested that the expected revenue realization of 7.7 per cent per annum in 11th Plan (2007-12) would have to scaled up to 8.4 per cent of the gross domestic product (GDP) in the 12th Plan.

The panel has pitched for increasing the gross budgetary support (GBS) to 4.1 per cent of GDP per annum in 12th Plan from 3.5 per cent in the current five-year period.

The Commission wants the GBS be pegged at as high as 4.8 per cent of the GDP in 2016-17. The Budget estimates for the current fiscal indicate that GBS would be 3.7 per cent.

GBS indicates the resources allocated for centrally sponsored social sector schemes.

It is also suggested by the panel that the non-Plan (recurring) expenditure should be reduced in 12 Plan to 8 per cent of GDP from the 10.3 per cent level estimated in the 11th Plan.