News Brief
For Developed India By 2047, EY Recommends Increased Government Spending, Reduced Fiscal Deficits And Tax Reforms
EY presents it recommendations to frame India's fiscal architecture to realize Viksit Bharat
In its latest Monthly Economy’s Watch article, EY underscored the importance of enhanced government spending as a cornerstone of India's Viksit Bharat vision by FY48.
It emphasised that achieving a sustained real GDP growth rate of 7 per cent or higher is critical for India’s transformation into a developed economy. The report recommended implementing strategies to boost tax revenues, unlock untapped resources, and maintain fiscal prudence.
EY outlined four key dimensions of India’s fiscal reform needed to achieve this goal:
1. Expanding Government Size and Financing: India’s total government expenditure, including primary and interest payments, needs to increase from the current 29.1 per cent of GDP (FY24) to 35 per cent of GDP. This aligns with the expenditure norms of developed economies.
2. Recasting the FRBM Act: Fiscal Responsibility and Budget Management (FRBM) reforms should reduce fiscal deficits to 6 per cent of GDP by FY31. Interest payments as a share of GDP should also be aligned with FRBM norms, targeting 3.6 per cent.
3. Reforming Fiscal Transfers: Fiscal transfers from the Centre to states should be restructured to ensure equitable and efficient resource allocation.
The report emphasised that primary government expenditure should rise from 23.8 per cent to 31.4 per cent of GDP, split between 25.4 per cent for revenue spending and 6 per cent for capital expenditure. These adjustments are essential to meet the per capita GDP benchmarks of developed economies.
EY also called for a substantial increase in India’s tax-to-GDP ratio, targeting 25 per cent by FY48. Having hovered between 16-18 per cent for over three decades, the ratio recently exceeded 18.5 per cent in FY24.
Additionally, non-tax revenues must grow from 2.3 per cent to 4 per cent of GDP by leveraging untapped government resources, including land, minerals, and territorial waters.
The report emphasised that these fiscal reforms are vital to ensure economic resilience and equitable development, enabling India to sustain growth and meet its Viksit Bharat aspirations by FY48. Balancing ambitious economic goals with fiscal discipline will be key to achieving this transformation.
