FinMin blames Rs 1 lakh cr tax shortfall on Budget's optimism on growth, tax buoyancy

Economic advisers in the finance ministry conceded that thebudget for 2014-15 overestimated tax collections by Rs 1.05 lakh crore due to wrong projections of nominal economic growth and tax buoyancy. They cautioned that the forthcoming budget should learn from this experience. 

At the outset, this may seem to have only economic repercussions. However, its political effects cannot be ruled out since Finance Minister Arun Jaitley had said in the previous session of Parliament that he had taken the fiscal deficit numbers from the interim budget presented by his predecessor P Chidambaram Stock Market Trading Tips

“I have accepted the figures (fiscal deficit) and I moved on the presumption that the figures given in the Vote-on-Account of the interim Budget by my predecessor (Chidambaram) are correct. Therefore, I have maintained those figures in the larger interest of the economy,” he had said in the Lok Sabha.

While overestimation was to the tune of Rs 68,976 crore on the indirect tax side, it was Rs 36,108 crore in direct taxes. 

The sum to the tune of Rs 27,079 crore was mis-calculated due to exaggerated projections for nominal economic growth while Rs 78,005 crore was wrongly projected due to higher optimism on tax buoyancy.

This is roughly the shortfall in tax collections that now looms ahead, said the Mid Year Economic Analysis for 2014-15 Financial Astrology Trading Tips

The analysis, penned by chief economic adviser Arvind Subramanian and his team, said nominal economic growth in the economy would be about 10.6% instead of 13.4% assumed in the Budget. The nominal growth is to be hit by moderation in inflation and lower real economic growth. 

Though real economic growth is pegged at 5.5% for the year, it is towards the lower side of projections made in the Economic Survey at 5.4-5.9%.

Then, the government overestimated the buoyancy of tax revenues. Buoyancy refers to growth in tax collections relative to nominal GDP. 

Jaitley has also pegged the Centre's fiscal deficit at 4.1% of GDP, the one given in the interim budget presented by Chidambaram Nifty Trading Tips