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Data: Net Market Loans of the Union Government crossed 10 lakh crore rupees for the first time in 2020-21


The pandemic forced all governments to increasingly rely on loans to meet expenditures. Increased debts of various states are a well-known fact. Data also indicates that the union government had to resort to increased borrowings to meet the expenditure. The Net Market Loans of the Union Government crossed 10 lakh crore rupees for the first time in 2020-21.

In our earlier analysis of the revenues of the State governments, we highlighted the fall in the revenue receipts of states due to the pandemic. Data indicates an increased reliance of the state governments on grants-in-aid and borrowings to meet the expenditure.  In an earlier analysis of the Centre’s revenue during the pandemic, we highlighted the fall in the tax revenue of the centre, especially the revenue through Direct taxes. Like the states, there is also concern about the union government’s reliance on borrowings to meet the budget expenditure. In this context, we look at the trends in receipts of the Centre over the years. 

Actual Net Tax Revenue of Centre less than 90% of the Budget estimates since 2017-18 

The actual tax revenues of the Centre during the COVID-19 affected year 2020-21, were made available in the budget presented for 2022-23.  As expected, there was a shortfall in the actual Net Tax revenue of the centre during 2020-21 compared to budget estimates.

The tax revenue of the Centre includes revenue through direct & indirect taxes such as Income Tax, Corporate tax, Wealth Tax, Customs, Excise duty, Service Tax, GST, etc. Net Tax Revenue (NTR) of the Centre is ascertained after deducting the State’s share of the taxes and the transfers made to NDRF. This revenue is at the centre’s disposal to meet its expenditure. 

As per the information available in the budget documents, the actual NTR of the Centre for 2020-21 was Rs. 14.26 lakh crores. This is around 87% of the budget estimates (BE) for the year, which was Rs. 16.35 lakhs crores. While it falls short of the BE for the year, it is still more than the reduced Revised Estimates (RE) of Rs. 13.44 lakh crores. However, it must be noted that this lower actual tax revenue compared to the BE is not specific to the pandemic year. There is a shortfall in the actual tax revenue of the centre compared to the budget estimates for the past few years. 

In 2017-18, the actual NTR was more than the BE for the year. But it showed early signs of the declining trend in the NTR of the centre. In the ensuing two years, the actual NTR was only about 88.96% and 82.26% of the BE for the respective years. 

Net Tax Revenue to Budget expenditure ratio of 2020-21 is the least in 10 years 

The share of NTR in the total budget expenditure of the government provides a better understanding of the ability of the government in meeting its overall expenditure, and the remaining quantum that has to be raised from other sources of non-tax receipts & loans. 

The actual NTR of the centre in 2020-21 was Rs. 14.26 lakh crores which are higher than Rs.13.56 lakh crores in 2019-20. Despite a shortfall compared to the BE, the actuals as highlighted above were 87% of the BE, which is better than 82% in 2019-20.  However, these numbers do not show the actual impact of the pandemic. 

The actual NTR in 2020-21 was only about 40 % of the Actual Budget Expenditure (ABE) for the year, forcing the centre to rely on other sources like non-tax revenues and more importantly borrowings to meet the expenditure. 

However, this decline set in even before the pandemic. In 2017-18, NTR was around 58% of ABE for the year. This was an improvement over the previous years. Except for 2015-16, there has been a near-increasing trend since 2011-12. But post 2017-18, there is a sharp decline, which got worse during the pandemic. It also ought to be noted that there is an increase in the Actual Budget Expenditure of the Centre during 2020-21, compared to its earlier estimates, in view of the spending related to pandemic relief measures. The RE for 2021-22, and BE for 2022-23, show an improvement albeit still less than 50% of the total budget expenditure. However, it remains to be seen if the share of NTR in ABE improves in 2021-22 and 2022-23. 

In 2020-21, more than half of Budget Expenditure is met through Debts 

As data indicates, in 2020-21, apart from an increase in the actual expenditure incurred by the centre, the actual net tax revenues were lower than estimates.  The government had to depend on other sources to meet its expenditure. Non-tax revenue is one such source but makes up for a small share. Another major source of receipts from the government apart from the tax revenue is its capital receipts, especially Debt Receipts or loans. 

The Debt receipts constitute – Market Loans, Short term borrowings, External loans, securities issued against small savings, State provident funds, etc. These are liabilities to the government, which it needs to repay in the future.  The actual debt receipts in 2020-21 amounted to Rs. 18.25 lakh crores, which is nearly twice the amount of 2019-20. Furthermore, the debt receipts of the government for the year were higher than the Net Tax revenue for the year. 

This implies that the government met 52% of its expenditure through loans. While this is understandable in the wake of increased spending related to pandemic relief measures, an increasing trend has been observed in recent years. 

In 2017-18, the proportion of debt receipts compared to the budget expenditure was 27.4%, which increased to 28.1% in 2018-19. In 2019-20, the centre’s reliance on debt receipts increased further to 34.8%. The increased reliance in recent years has reversed the improvement shown since 2011-12, where there has been a year-on-year fall in the share of debt receipts in total expenditure. 

Apart from an increase in Market Loans, there is an increasing trend in reliance on Securities issued against Small Savings

Market Loans form the major source of debt receipts of the Centre. The exponential increase in the debt receipts to meet the expenditure as seen in 2020-21, can be attributed at large to the exponential increase in the market loans for the year.  The value of actual net market loans borrowed by the centre in 2020-21 was Rs. 10.33 lakh crores. It was the first time that the market loans crossed Rs.10 lakh crores in a year. For comparison, the net market loans of the centre were only Rs. 4.7 lakh crores in 2019-20. 

This implies that nearly 30% of the budget expenditure incurred by centre was met through the market loans it raised. The numbers in the earlier years indicate no major fluctuations in the market loans borrowed by the centre. While the increase in market loans is understandable in wake of the pandemic, it ought to be noted that the budget estimates for market loans for 2022-23 are Rs. 11.18 lakh crores i.e., the centre plans to meet around 28% of its expenditure through market loans. 

Apart from market loans, two other key sources of debt borrowed by the centre include its short-term borrowings and securities issued against small savings. The trends in the borrowings in the form of short-term borrowings are not uniform and vary from year-to-year. During 2019-20 and 2020-21, the centre has increased reliance on short-term borrowings. An emerging trend observed in recent years is the increased reliance on securities issued against Small Savings. 

In 2017-18, the securities amounted to Rs. 1.03 lakh crores and increased to Rs.1.25 lakh crores in 2018-19. In 2019-20, the borrowings in securities against Small Savings nearly doubled to Rs. 2.4 lakh crores and it further doubled in 2020-21 to Rs.4.84 lakh crores. The revised estimates for 2021-22 peg them at Rs. 5.91 lakh crores and the budget estimates for 2022-23 is Rs. 4.25 lakh crores. 

Increasing trend of Fiscal deficit aggravated by the pandemic 

The available data indicates that there has been a major impact on the fiscal position during 2020-21. Apart from the lower Net Tax revenue compared to estimates, there is also an increase in the expenditure of the centre during that year. This was met by an exponential increase in the borrowings made by the centre. While the situation was aggravated during the pandemic, there was already an increasing trend of increased borrowings of the centre, a few years prior to 2020-21.  The lower net tax revenue estimates for 2021-22 and 2022-23 and higher debt estimates indicate that the situation is going to continue for a few more years.

Featured Image: Net Market Loans of Government of India


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