This experience with the effects of tax reduction and rationalisation on revenue generation has implications for other areas of taxes as well. Though in these cases revised revenue estimates for 2001-02 are higher than in 2000-01, the shortfall relative to budgeted estimates must to some degree be attributed to the reduction in rates and the rationalisation of tariffs. Thus, if the trend towards revenue shortfall in 2001-02 is to be stalled, it would be necessary for the government to both adjust tax rates or the tax base suitably as well as work towards a reversal of the recession.
 
Interestingly, however, the shortfall in tax collection has not affected the government’s expenditure as adversely as is to be expected. As Chart 3 shows, while there was a shortfall in revenue expenditures relative to budget estimates to the tune of Rs. 10,000 crore, an increase in plan expenditure relative to budgeted, has resulted in an overall shortfall in expenditure of just about Rs. 5000 crore. The question then is how the government has been able to sustain its expenditures despite the huge tax collection shortfall.
Chart 3 >>
 
There are two developments of relevance here, besides the fact that a third of the tax revenue shortfall is a burden on the states rather than the centre, making the latter’s revenue loss on this count about Rs. 20,000 crore. First, despite the recession, the government has been able not just to meet but in fact exceed its non-tax revenue by Rs.1,500 crore relative to what was budgeted (Chart 4). This is predominantly due to windfall gains in two areas. An excess accretion of Rs. 3,000 crore in the case of Dividends and Profits, due to a sharp jump in dividends from public sector enterprises from the budgeted Rs.5419.50 crore to the realised Rs.10295.78 crore. This is largely explained by the one-time “revenue farming” resorted to by the government, by transferring to itself cash surpluses with enterprises like VSNL prior to their disinvestment. The other was the gain in non-tax revenues in Communications, which stood at Rs.7395.21 crore against a budgeted figure of Rs.3725.29 crore because of licence fees for basic/cellular telecom services and fees from VSNL, MTNL and BSNL.
Chart 4 >>
 
The second, and more obvious way in which the government has been able to keep expenditures going is by increasing its budgeted fiscal deficit of Rs. 116314 crore to an estimated Rs.131721 crore and its budgeted open market borrowing of Rs. 77353 crore to an actual Rs. 91480 crore, which helped neutralise the much lower than budgeted receipts from disinvestments as well.
 
It should be obvious that the government cannot expect the first of these windfall gains to accrue every year. Yet, the budgeted figures for 2002-03 provides for a large contribution from non-tax revenues, that rose in 2001-02 to 33 per cent of all revenues as compared with 28.9 per cent in 2000-01. Revenues from Dividends and Profits are expected to remain at Rs. 18805 crore as compared with Rs. 18292 crore and revenues from the Communications sector at Rs.5256 crore as compare with Rs. 7395 crore. But with the government having chosen to budget for a fiscal deficit of just Rs.135524 crore in 2002-03 as compared with 131721 crore in 2001-02, even this is inadequate to finance the close to Rs.46,000 crore increase in expenditure it expects to incur in the coming financial year (Chart 3).
 
It is for this reason that the government has decided to resort to a range of imposts which put together seems to have no driving perspective other than increasing revenues through any means possible. In the event, the government has budgeted for a Rs.39107 crore increase in tax revenues (Chart 2). Since revenues from Customs duties are expected to rise by just Rs. 2000 crore from their depressed 2001-02 levels, the burden must be imposed through other means. The structure of that burden is disconcerting indeed. While corporation taxes are expected to contribute an additional Rs.9,500 crore, taxes on income are budgeted to garner an additional Rs.8,000 crore and excise duties a huge Rs.17,000 crore.
Chart 2 >>