Speaking in an exclusive interview, Chief Economic Adviser V. Anantha Nageswaran on Thursday, emphasised the critical role of taxation in supporting India’s macroeconomic stability and fiscal consolidation.
“Strong tax collections and buoyancy have supported fiscal consolidation,” he said, highlighting that India’s fiscal management rests not just on revenue growth, but on the quality of government spending.
The CEA pointed out that effective capital expenditure has now reached around 4% of GDP, up from 2.7% pre-COVID.
“This improvement in capital spending has significantly enhanced the quality of government expenditure,” he noted, underlining that efficient allocation of resources is as crucial as the total revenue collected.
Fiscal discipline has also translated into tangible outcomes in terms of deficit reduction. The union government’s fiscal deficit is projected at 4.4% of GDP, while the primary deficit, which excludes interest payments, has fallen sharply to 0.8% of GDP. Nageswaran attributed this achievement to the combination of buoyant tax collections and strategic spending reforms.
On the role of states, he stressed the importance of long-term fiscal sustainability.
“Unconditional transfers do have a short-term role—they put cash in the hands of the public, raise disposable income, and increase spending power. However, sustaining growth will require careful prioritisation so that short-term income support does not erode the very investments on which inclusive medium-term prosperity ultimately rests.”
The CEA also highlighted how these fiscal achievements underpin broader economic confidence. “Strong tax performance and prudent fiscal management contributed to India’s triple-B and other credit rating upgrades,” he said, noting the positive signals it sends to global investors.
Complementing revenue mobilisation, tax policy reforms have made compliance easier and more business-friendly. Nageswaran cited the simplification of the Income Tax Act and GST 2.0, which introduced simpler slabs and higher exemptions, as measures that sustain tax buoyancy while encouraging formal economic activity.
In sum, Nageswaran presented a clear narrative linking tax collection, fiscal prudence, and productive expenditure: robust tax revenue, when combined with quality capital spending and disciplined state finances, forms the foundation for India’s sustained growth.
