Goods and Services Tax (GST) - Impact on Fiscal Deficit in India

Introduction

The fiscal deficit is a difference between the total expenditure and the total revenue it generates during a fiscal year. This Gap is then plugged by the government by borrowings. In other words, the Fiscal deficit is an indication of total borrowings needed by the government. The fiscal deficit is measured at three levels, Centre, State and gross.

In India, at the central level, the GAP is on a declining trend but still it remains one of the core issues unresolved before the government. At the state level, it still possesses a risk to the economy as a whole. The trend of fiscal deficit is as follows;

The tabular presentation is here as follows:

Reason behind the declining trend

The foremost reason behind the declining trend is the decrease in the government expenditure which is detrimental to the economic growth. Ideally, the government has to boost expenditure in growth critical areas and moderate the unproductive spending. Further, the government also has to increase the tax revenue to manage the fiscal deficit.

GST – A boon

To raise the tax rates is not recommended at this stage as it may hit the growth chart directly. Hence, GST is a boon to the government in the current scenario. The impact of GST on the tax structure and fiscal deficit will be manifold. Here are some of the outlined points;

• Ease of doing business: By eliminating the web of tax laws under indirect tax structure and making India a single market, will boost the ease of doing business in India. Further, GST will also curtail down the cost of doing business which will attract more investment into the country and thus affecting the fiscal deficit.

• Broadening tax base:  Simple procedure and awareness about the subject will bring more people under the tax net. This will hit the black economy which is currently running parallel to the economy. Increasing legitimate business will increase the tax revenue and hence, further curtailing the fiscal deficit.

• Lesser Exemption more tax:   Exemptions under VAT are not recommended as they break the chain of CENVAT. Hence, unlike present structure, there will be very less exemptions from GST.

There may be an endless discussion to it but in the end, GST is an effective solution and will lay down a strong foundation for a structured economic growth.

Conclusion

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