Efforts to recoup tax to GDP ratio by next fiscal: Parthasarathi Shome

The Union Ministry of Finance is expecting to recoup the 1% tax to GDP ratio it lost from the global recession period, by next fiscal year, said Parthasarathi Shome, advisor to Union Finance Minister.

Delivering the fourth R Venkataraman Endowment Lecture on India: Fiscal trends, tax reform and trade liberalisation, he said, "We are making extraordinary efforts to recoup our tax to GDP ratio, which we need very very strongly."

In 2008-09, the tax to GDP ratio of the central government went down by around minus 1.14% and since the global recession period, only in 2010-11 the tax to GDP ratio was changed postively to 0.53%.

"All the other years, which are completed, we have tax to GDP ratio declining. Therefore, while we have achieved tax to GDP ratio at central government at 10.5, in the net we experienced reduction of 1% in GDP to about 9.5," he said.

"We have to see in 2012-13, we are hoping it will be half a per cent of GDP extra and it has been budgeted to be another half a per cent extra in next year. So we recoup the lost 1% of GDP from the period of global recession," he added.

The tax to GDP, which was at a minus 0.27 in 2011-12, is expected to be at 0.44 in 2012-13 and 0.52 in 2013-14, according to a presentation made by Shome.

He added that the country's weight on services sector is higher in GDP, which is closer to the trend in US, while many of the developing countries are strong in manufacturing sector. While the service sector of US is strong and is open, India protects its service sector from any outside interference. He assured that the country does not need to be worried about the services sector, since it is dynamic.

He added that the global rating agencies has already responded postively to the Indian economic situation and the budget and it is expected to get a better rating in future from these rating agencies. The rating would help to bring in foreign investments into the country, which would again boost the country's growth, he added.