Budget 2012: Where does the government get its money from?

by Manshu on March 20, 2012

in Economy

Yesterday I wrote about some of the key highlights from the budget and today I’m going to take a look at the sources of government funds and how they contribute to the government coffers.

First, what are these sources?

1. Revenue Receipts – Tax Revenue: This is the tax that the government collects in the form of corporation tax, personal income tax, customs, excise etc.

2. Non Tax Revenue: These are things like interests on bonds held, dividends from PSUs, and grants. They are revenue sources meaning they don’t have to be repaid and are smaller than tax revenues.

3. Capital Receipts: These are borrowings of the government like the market loans, short term borrowings, external commercial receipts etc.

Now, some charts and the source for the data is the budget website.

First, a pie chart of the top three sources.

Government Sources of Fund

Government Sources of Fund

Here is the table that shows the absolute numbers.

Head In Crore of Rupees
Tax Revenue 7,71,071
Non Tax Revenue 1,64,614
Capital Receipts 5,55,241

From the above chart, we see that tax revenues are the biggest contributor of money to the government, and now let’s take a look at what the tax revenues comprise of.

Gross Tax Revenue Breakup

Gross Tax Revenue Breakup

Let’s look at the numbers.

Head In Crore of Rupees
Corporation Tax 3,73,227
Income Tax 1,95,786
Wealth Tax 1,244
Customs 1,86,694
Excise Duties 1,94,350
Service Tax 1,24,000
Taxes on UT 2,310

The striking thing about this chart is perhaps that corporate tax contributes twice as much as individual income tax.

Now, let’s move on to the second head which is the non tax revenues.

First, the chart.

Other Non Tax Revenue

Other Non Tax Revenue

Other tax revenues are dominated by the others column which are things like petroleum royalty and then of course dividends from PSUs come second.

Here are the absolute numbers and remember this is just 11% of the total government funds.

Head In Crore of Rupees
Interest Receipts 19,231
Dividends and Profits 50,153
External Grants 2,887
Other Non Tax Revenue 91,207
UT Receipts 1,136

Now, let’s take a look at the last head which is the capital receipts or the government’s credit card.

Here is how that looks like.

Capital Receipts

Capital Receipts

Borrowing contains, well, market borrowings and that’s the bulk of this part. Here are the absolute numbers.

Head In Crore of Rupees
Market Loans 4,79,000
Short Term Borrowings 9,000
External Grants 10,148
Small Savings 1,198
SPF Net 12,000
Other Receipts 2,245

A few things that come to my mind looking at the numbers in the form of these pie charts – first, income tax collection is half of corporate tax collection and this when only about 3% of the population pays taxes – surely, the tax base needs to be widened.

Second, a large part of the funds are being raised by borrowing and while it’s good that a large part of this is money raised in INR – the interest payment on this debt eats into the money the government has left to spend on other things and that negatively affects the economy.

Finally, given that subsidies are a large expense for the government it’s hard to really see petroleum royalties as a genuine revenue source, and with crude prices skyrocketing there is an urgent need to rationalize oil subsidies.

What are your thoughts on these charts, do any of these ratios surprise you at all?

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{ 19 comments… read them below or add one }

Prat March 20, 2012 at 1:31 pm

Thanks a lot for education that you are providing and making us smarter day by day.

It was kind of interesting to see that personal income tax contributes only 13% to the govt income, because I always had this perception that IT paid by the common man is what majorly runs the govt. Also, its good to know that IT, customs and excise contribute almost equally.

Reply

Tushar March 20, 2012 at 2:18 pm

Manshu

This is a good summary…can you put the expenditure side charts as well…that then will give us some intriguing insights.

Tushar

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Manshu March 21, 2012 at 6:44 am

This is a very time consuming exercise and looking at the very few comments on this post I think it’s probably not worth it.

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Kaber Vasuki November 28, 2012 at 9:18 am

No no. It’s totally work it. I know it’s a time consuming task, but it is definitely worth it. More people read and very few comment. So if you find the time, please do make one for expenses as well.

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vijay March 20, 2012 at 2:35 pm

Excellent effort. Keep up the good work….

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Mohammed Karimullah April 30, 2012 at 3:13 am

Good work simple and informative

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Atul Mittal June 5, 2012 at 11:12 am

Amazingly simple and insightful write-up.
Thanks for giving such clear picture

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Manshu June 6, 2012 at 4:35 am

Thanks for your comment Atul.

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Kaber Vasuki November 28, 2012 at 9:17 am

I was just thinking the same thing. Excellent post this is.

Reply

vishnu kumar December 12, 2012 at 6:54 pm

Hi, Its an eye-opener and thanks for the worthful information. I am going to share this information in my class… Hope, everyone atleast knew how india runs…

Vishnu Kumar

Reply

Ajit January 29, 2013 at 5:43 pm

Simple excellent way to present :)

Reply

Ajit January 29, 2013 at 5:43 pm

Simply excellent way to present :)

Reply

mohammad haider talat February 15, 2013 at 4:57 pm

got many things i was looking for at one place…..brilliant….fantastic…great work to say the least….pls keep it up………..!!!!!!!!!!!!!

Reply

Abhijeet March 26, 2013 at 10:45 pm

The Indian government must do something about rising trade deficit in India by investing more money on infrastructure in government PSU’s so as to make them more competitive in the foreign market, increasing FDI in defence from 26% to 90%, decrease corruption etc. The Prime Minister should take decisions that will make india economically stronger than China.

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Siva April 2, 2013 at 11:26 am

Excellent effort. Keep up the good work….

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Kriti June 12, 2013 at 4:49 pm

Can you please tell me what is UT?

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Manshu June 14, 2013 at 2:44 am

UT is union territory Kriti.

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Rati September 11, 2013 at 10:37 am

can you tell us more about VAT and how its levied across India?????? and why petrol & diesel has around 50% VAT in every state?

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shivraj October 12, 2013 at 12:30 pm

Hi manush,

Its surely an eye-opener, Interesting article, very simple and concept clearing article. Just need to understand the Concepts/Terminologies like wealth tax, corporation tax and Income Tax.
Also, it would be better if same explanation given for expenditure too.
Looking forward for your reply.

Thanks

Reply

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