Ever increasing tax mop-up augurs well for the Indian economy, but…

The overwhelming response to the Ayodhya event might have made Bihar CM Nitish Kumar realise that the I.N.D.I.A bloc can’t unseat the BJP in the upcoming elections. So, he again joined hands with BJP just a few months before the General Elections. But Nitish’s frequent U-turns will take a big toll on his image

The much-awaited consecration of Lord Shri Ram Lalla ended on a grand scale in Ayodhya on January 22. The ceremony resonated across India in an equally-grandiose way. But the biggest political takeaway from the consecration is that every possible effort was made to ensure that the ceremony didn’t appear like an out and out BJP show.

Only Prime Minister Narendra Modi, Uttar Pradesh Chief Minister Yogi Adityanath, UP Governor Anandiben Patel and Rashtriya Swayamsevak Sangh (RSS) chief Mohan Bhagwat took part in the main ceremony. While Modi, Yogi and Patel enjoy constitutional positions, the RSS chief is the only one without any official position.

The Modi government seemed to have carefully selected the guests’ list for the ceremony. It invited leaders from a diverse spectrum of society, including religious heads, business leaders and celebrities. Ironically, even Union Ministers, including the all-powerful Amit Shah, were not present and neither was the BJP national president J.P. Nadda.

Further, the Sangh Parivar took up several programmes across India to create positive vibes about the ceremony.

As a prelude to the ceremony, Modi visited major pilgrim centres linked to Lord Ram in south India. Apparently, the Modi government has sent out a message that Lord Ram belongs to all. This strategy fetched handsome dividends as the consecration ceremony elevated Modi’s image to the next level. This also bolstered the prospects of NDA winning a third consecutive term at the Centre, which even Modi’s political adversaries concede.

That’s the reason why West Bengal Chief Minister Mamata Banerjee refused to have an alliance with the Congress. Bihar Chief Minister and Janata Dal (United) leader Nitish Kumar also took a U-turn. Kumar, eyeing the prime ministerial position, parted ways with BJP and joined hands with RJD to form government in Bihar in 2020. He was instrumental in forming the I.N.D.I.A bloc, comprising 22 opposition parties, including Congress, to take on the common enemy BJP.

The overwhelming response to the Ayodhya event might have made him realise that the I.N.D.I.A bloc can’t unseat the BJP in the upcoming elections. So, he again joined hands with BJP just a few months before the General Elections. This clearly shows which way the wind will blow in the upcoming elections, but Nitish’s frequent U-turns will take a big toll on his image.

Obviously, these developments will pose a threat to the opposition unity and Congress, the main opposition party in the Lower House with nearly 50 MPs, will go through another challenging period in the upcoming elections. However, there is no point in Congress losing its heart. It’s still the only political party that has the wherewithal to challenge the dominance of the BJP even now.

If it correctly decodes Modi’s winning mantra and devises potent counter-strategies, it can still take on the BJP effectively.

As the country was celebrating the consecration of Lord Ram Lalla, an important update went unnoticed. The country’s direct-tax-to-GDP ratio hit a 15-year high of 6.11 per cent in FY23. The Central Board of Direct Taxes (CBDT) announced this a day after the Ram Mandir’s inauguration. The previous highest direct-tax-to-GDP ratio was 6.3 per cent way back in 2007-08. In F23, the direct tax mop-up stood at a staggering Rs. 16.6 lakh crore, accounting for 54.6 per cent of total tax collections of Rs. 30.45 lakh crore.

Interestingly, direct tax collections zoomed 160 per cent from Rs. 6.38 lakh crore in FY15 to Rs. 16.6 lakh crore in FY23. That’s a huge jump during Modi’s tenure. Indirect taxes also went up abnormally after the introduction of Goods & Services Tax (GST).

In a recent report, the economic research wing of State Bank of India (SBI) projected that the gross-tax-to-GDP ratio, which is currently at 11.6 per cent, is likely to hit a 16-year high in the current financial year. The ratio will further go up in the next financial year (FY25). It is common knowledge that higher ratio implies higher tax revenues.

But does ever increasing tax mop-up augur well for the Indian economy? It obviously does.

But tax rates are high in India while taxpayers’ base is low. The government should widen the tax base while reducing the tax burden on individuals. Further, rise in indirect taxes, like inflation, will adversely affect the country’s poor as they will be forced to pay these taxes through their noses. Rationalisation and simplification of GST and other indirect taxes are the need of the hour.

On the economic front, this week will witness a significant development with Finance Minister Nirmala Sitharaman presenting the Union Budget on February 1. With this, the country’s first full time woman Finance Minister will table her sixth consecutive budget in Parliament, equaling the record set by former prime minister Morarji Desai, when he was the Finance Minister in Pandit Jawaharlal Nehru’s Cabinet. Desai presented five annual budgets and one interim budget between 1959 and 1964.

Sitharaman’s predecessors Dr. Manmohan Singh, P Chidambaram, Arun Jaitley and Yashwant Sinha tabled five budgets in-a-row each. With her sixth budget, she will surpass their records and deserves accolades for the feat.

Meanwhile, corporate India and others have already reeled out their budget wish-lists. But as this is the election year, it will normally be an interim budget. The full Union Budget will follow in July after the General Elections. The Finance Minister made it clear last month that it will be a vote-on-account budgetary exercise; hence, there is no scope for any major announcements.

A vote-account-budget will just allow the central government to withdraw money from the Consolidated Fund to meet expenses until the Parliament approves a full budget.

However, Sitharaman is likely to give ample glimpses of what will be in store for the country in the full Union Budget if BJP is voted to power for a third consecutive term.

Reading between the lines will be important to understand this!