Explain the pattern of revenue collection after economic reforms in India.

Question

Ghissu Editorial · Accepted Answer

After the 1991 reforms, direct taxes rose from about 36% of gross tax revenue in the 1980s to nearly 59% by 2024-25, and GST (2017) unified indirect taxes. States like Andhra Pradesh still lag in own revenue, with a CAG audit finding a ₹1,806 crore impact in 2021-22.

**Introduction**

Since⟦1⟧ 1991, India’s revenue collection has evolved significantly with reforms aimed at fiscal stability and economic growth, impacting states like ==Andhra Pradesh⟦4⟧⟦3⟧⟦2⟧== that face unique fiscal challenges after bifurcation and special category status demands. These reforms broadened the tax base and improved administration, crucial for funding development.

**Trends and Changes**

1. **Direct Taxes Growth**: Direct taxes increased from 36% in the 1980s to 59% by 2024-25, driven by personal income tax overtaking corporate tax as the major revenue source, reflecting better compliance and formalisation.

2. **GST’s Role**: GST unified multiple indirect taxes into a single destination-based tax, boosting average monthly collections from ₹0.90 lakh crore (FY18) to ₹1.49 lakh crore (FY23), facilitating interstate commerce and reducing compliance costs.

**Factors Influencing Revenue**

3. **Digital and Institutional Reforms**: Post-2014 digitalisation, including the Faceless Assessment Scheme⟦5⟧ and Annual Information Statement, enhanced transparency and compliance; the number of income tax returns filed has risen steadily.

4. **State-Level Fiscal Issues**: ==Andhra Pradesh== audits revealed ₹1,806 crore revenue impact (2021-22), ₹2,772 crore outstanding audit observations (2023), and ₹968 crore excess payments in CFMS audit, showing persistent revenue gaps and challenges in tax administration.

**Implications**

6. **Need for Better Administration**: Audit findings in ==Andhra Pradesh== highlight the urgent need for stronger tax administration, accountability, and addressing underassessment to improve fiscal outcomes and sustainability.

**Conclusion**

Reforms have enhanced India’s revenue collection and fiscal capacity, but state-level challenges, especially in ==Andhra Pradesh==, require targeted fiscal and administrative reforms to ensure sustainable fiscal health and inclusive growth.

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