Fiscal discipline improved ‘progressively’; States having better tax positions: CEA in Economic Survey

CEA Nageswaran notes improved fiscal discipline, increased tax devolution benefiting states, and state-specific tax revenue growth in Economic Survey.

Chief Economic Advisor (CEA) V. Anantha Nageswaran in the Economic Survey tabled on Friday (January 31, 2025) observed that the Union Government’s indicators for determining fiscal discipline have improved “progressively”. Additionally, the CEA also noted that the overall tax revenue position of State governments appeared better as of November last year. This was on account of increased tax devolution by the central government.  

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On the aspect of improving fiscal disciple, the CEA elaborated that the quality of expenditure of the union has continuously improved since financial year 2021. Furthermore, Mr. Nageswaran observed that deficit indicators (metrics to analyse if a sovereign is spending more than revenues earned) of the union government were “comfortably placed”, thus, “leaving ample room” for developmental and capital expenditure for the remainder of the year.  

Mr. Nageswaran noted that capital expenditure remained subdued in the first quarter of FY 2025 owing to general elections. However, capex witnessed a rebound in July owing to an increase in the devolution of taxes to states. Significantly, this was notwithstanding a reduction in non-debt receipts (those that do not generate any future liabilities). “Until November 2024, defence, railways and road transport accounted for about 75% of the capital expenditure, whereas significant YoY growth occurred in power, food and public distribution,” the CEA noted in the survey.  

However, the CEA held, despite an observed 10.7% year-on-year increase in gross tax revenues during the mentioned period: the tax revenues retained by the Union, net of devolution to the states, hardly increased. “This was because of increased tax devolution which helped the states manage their expenditures smoothly,” he explained.  

Having reviewed the unaudited estimates of 27 states for the period between April and November 2024, the CEA inferred that the gross tax revenue of the union and own tax revenue (OTR), that is self-earned revenue of states from state GST, state excise, taxes on vehicles, stamp duty and registration fees – increased at a “comparable pace” during the period. Among the state-specific taxes, as noted by the CEA in the Economic Survey, stamps, registration, state excise duties and other taxes and duties registered a “positive” growth with land revenues registering a decline. 

Mr. Nageswaran further added that overall tax revenue position was further augmented because of increased tax devolution by the Union.