Do you realize that borrowings fund a significant portion of the government’s yearly expenses? And did you know that GST has now surpassed income tax to become the primary source of tax revenue for the government?
The Indian economy is rapidly expanding and is now the sixth largest in the world. Funding the financial requirements of a country as vast as India is an intricate process.
To achieve this, the government releases a plan for its earnings and expenditures in the Union Budget each year. In 2021, Finance Minister of India – Nirmala Sitharaman allocated over Rupee 34 lakh crore to finance India’s budget needs. These funds were channeled through different sources.
Know how the government earns money to run the country
The 2023 Union Budget reveals that the Government of India earns 34 paise from borrowings and liabilities for every rupee earned, with Goods and Services Tax (GST) contributing 17 paise.
Income and corporation tax each contribute 15 paise, while Union Excise Duty and Customs add seven and four paise, respectively. The remaining eight paise comes from non-tax receipts and non-debt capital receipts.
The Centre’s outstanding internal and external debt and other liabilities are estimated to be Rupee 1,69,46,666.85 crore for FY 2023-24. Meanwhile, GST is expected to see a 12% increase, rising from Rupee 8,54,000 crore to Rupee 9,56,600 crore in 2023-24.
In 2023-24, the expected amount of income tax paid by just a tiny fraction of India’s population is expected to cross Rupee 9 lakh crore. Corporation tax, the tax on companies’ incomes, is projected to reach Rupee 9,22,675 crore by March 2024.
These taxes, along with total debt and liabilities, make up 64% of the government’s total income of Rupee 45 lakh crore in 2023-24. Non-tax revenue, estimated at Rupee 3,01,650 crore in 2023-24 with a 15.2% increase over the 2022-23 revised estimate, adds 6% to the Centre’s funds.
Exactly where does a Rupee go?
However, the high percentage of debt and liabilities in the government’s yearly income means that 20% of the expenditure in 2023-24 goes toward interest payments. In other words, the government spends 20 paise of every rupee to repay debt and liabilities.
The second largest expenditure for the Centre is the sharing of tax and duty revenue with the states, which amounts to 18%. For the 2023-24 financial year, the total amount to be shared with states is Rupee 10.21 lakh crore, making up 41% of the total net proceeds of sharable central taxes, as per the 15th Finance Commission’s recommendations.
The second largest expenditure for the Centre is tax and duty revenue sharing with the states, which amounts to 18%. For the 2023-24 financial year, the total amount to be shared with states is Rupee 10.21 lakh crore, making up 41% of the net proceeds of sharable central taxes, as per the 15th Finance Commission’s recommendations.
According to the Union Budget 2023, UP and Bihar will receive nearly 28% of central taxes and duties.
Central Sector Schemes (17%) and Centrally Sponsored Schemes (9%) constitute over one-fourth of total government spending, with 26 paise of every rupee going towards these schemes. The Central Sector Schemes are 100% funded by the Centre, while the Centre partially funds the Centrally Sponsored Schemes.
Defence, the single most significant sectoral expenditure in the Indian budget, accounts for 8 paise of every rupee spent by the Centre. The 2023 defence budget stands at Rupee 5.94 lakh crore, making up 13.2% of the Centre’s total budgeted expenditure.
In the Union Budget, subsidies will receive at least 7 paise, one paise less than 2022-23.
The Centre has cut expenditure on food, fertilizers, and petroleum by 28% compared to the revised estimates for the current financial year.
Share your thoughts in the comments section!
