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Tag Archives | Karthik Dinne

How does the Union Government earn money?

Amidst all the analysis about fiscal deficits, budget etc, the fundamental question about how the Union Government of India earns its revenues gets ignored. This post examines the revenue aspect of the budget.

All the revenue that the Union Government earns can be classified into three buckets

  • Tax Revenue
  • Non-Tax Revenue
  • Capital Receipts

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Tax Revenue:  Tax revenue is the largest source of revenue for the Union. The major heads under tax revenue include

  • Corporation Tax – This is the tax levied on the income of Companies under the Income-tax Act, 1961
  • Income Tax – This is a tax on the income of individuals, firms etc. other than Companies, under the Income-tax Act. This also includes Securities transaction Tax
  • Wealth Tax – This is a tax levied on the specified assets of certain persons including individuals and companies, under the Wealth-tax Ac
  • Customs – Revenues earned through taxes imposed on imported goods
  • Union Excise Duties
  • Service Tax – Taxes on service transactions(at hotels,
  • Taxes from Union Territories – comprises of taxes collected by UT Governments without Legislature and include items of taxes normally collected by States. These taxes collected by UTs accrue to Central Government.

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Non-Tax Revenue: The various forms of Non-Tax revenue includes

  • Interest receipt – This includes the interest earned by the Union from loans to states, loans to Union territories, interest payable by the Railways and several other smaller loans advanced by the Union
  • Dividends and profits – This comprises of dividends and profits from public sector enterprises and surplus of the Reserve Bank of India that is transferred to Union.
  • Fiscal Services
  • General Services – Fees and other revenues earned by the Union through various general services that it provides. Eg., Central police forces supplied by the Union to States etc.)
  • Social and Community Services – Fees and receipts earned through social and community services. Eg., entry fees collected at museums.
  • Economic Services(including Railway revenue) – Revenue earned through economic services delieverd by the government Eg., royalty on Oil and Gas produced from the Offshore fields
  • Grants-in-aid and Contribution – Grants received from external sources
  • Non-Tax revenue of Union Territories – The receipts of the Union Territories (without legislature) mainly relate to administrative services; sale of timber and forest produce mainly in Andaman and Nicobar Islands; receipts from Chandigarh Transport Undertaking and receipts from Shipping; Tourism and Power 

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Capital Receipts: Capital Receipts include

  • Non Debt Capital Receipts
  • Debt Receipts

Non Debt Capital Receipts include

  • Recoveries of Loans and Advances – Loans recovered from states and union territories
  • Miscellaneous Capital receipts – receipts on account of disinvestment of part of government equity in central Public sector Enterprises

Debt receipts are those receipts that the Union receives for the current year under the explicit assumption that it is a temporary receipt which acts as a liability on the part of the government.

  • Borrowings
  • Securities against Small Savings
  • State Provident Fund
  • Other Receipts
  • External Debt

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(All the information contained herein, including most of the definitions, is taken from the Union budget documents for 2015-16)

Author’s note: A big shout out to Karthik Dinne for pointing out a few errors in the graphs in the previous update

Varun Ramachandra is a policy analyst at Takshashila Institution He tweets @_quale


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Do we need the Lokpal or is economic liberalisation enough?

Karthik Dinne

Any debate about the Lokpal generally ends up being an argument over either the function and structure of the Lokpal or about its need. People, who question the need for the Lokpal, term “economic liberalisation” as the solution for corruption and also more often as a panacea. Some of them truly believe that economic liberalisation is the only solution for the problem of corruption. But most others take up this argument just to damage the credibility of Team Anna which is bearing the brunt of the movement.

Corruption in India is a complex problem and there is no single point magic solution, be it a Lokpal or be it economic liberalisation. Lokpal has its own limitations. And so does economic liberalisation- mainly for two reasons. Firstly, economic liberalisation is essentially reducing the role of the government in the business or economy of the country, withdrawal of the government from certain sectors and removing the barriers for the market forces to operate freely. No matter how hard we try to limit the role of the government, it certainly has its role to play in certain vital sectors and areas where markets don’t offer solutions- law and order, universal primary health care and public infrastructure to name a few. If the presence of the government is the cause of corruption and since the government can’t get out of all sectors, there is always a possibility of corruption in those key sectors where government has a certain role to play.

Secondly, designing public policies in those sectors which ensure zero percent possibility for corruption during its implementation is an impossible task. Keeping in view the vastness and diversity of India, one cannot make a rigid set of implementation procedures or rules at the micro level and paint the whole country with the same brush. Some amount of discretion has to be left at the lower levels to ensure flexibility so that the policy can be adapted to the local conditions. But there is always a danger of this discretion leading to graft and other such problems. Maintaining this balance of discretion vs. the rules is one of the most challenging tasks in designing a public policy.

It is in some sense similar to controlling a crime. Some crimes can be prevented by delving deep into their root cause and for some there is no other way than punishing, thereby creating deterrence. Lokpal is one such deterrence mechanism. The absence of such a strong deterrence mechanism only creates incentives for people to be more corrupt. If people believe that even if they get arrested, they can conveniently get out of it by exerting their political influence or owing to the delays in the court judgements, if they think that can comfortably live on by using this convenient argument of “corrupt not until found guilty by court”- it is even more dangerous. The need of the hour is to have such an investigation agency free from political agency and a speedy delivery of the judgement. Lokpal ensures both of these and hence is very much essential.

There might be other possible solutions for corruption, each effective in its own sphere. Some may be “necessary but not sufficient” but that cannot be the argument to downplay that solution. Each step may only advance us a little, but we have to start somewhere and proceed towards having holistic solutions. This excessive obsession with both Lokpal and economic liberalisation is equally dangerous. As Swami Vivekananda once said “We take the highest point of ours and compare it with the least point of others and then downplay them”. Hope we don’t let this happen, because this nation simply can’t afford it.

The Author is a student at the Indian Institute of Technology, Kharagpur. 

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