Ever wondered how does the Indian government make money?
The Indian government earns money primarily through five sources:
1. Taxes
2. Non-tax revenue
3. Disinvestment
4. Public Debt
5. Foreign Investment
Let's take a closer look at each of these sources.
1. Taxes
The Indian government collects taxes on both the central and state levels, including income tax, goods and services tax (GST), customs duties, and excise duties. Income tax is a significant source of revenue for the Indian government, with tax collections totaling ₹6.6 trillion (approximately $88 billion) in fiscal year 2019-2020. In India, the income tax rate is progressive, which means that individuals with higher incomes pay higher tax rates. Individuals earning between 5-10 lakh (approximately $6700-$13400) pay 5% income tax in fiscal year 2021-2022, while those earning above ₹15 lakh (approximately $20,000) pay 30% tax. GST is another important source of revenue for the Indian government, with collections totaling ₹7.9 trillion rupees (approximately $106 billion) in 2019-2020. GST is a value-added tax levied on goods and services with the goal of simplifying the tax system and reducing tax cascading. Customs duties are levied on imported goods, while excise duties are levied on certain domestically manufactured goods. Excise duties brought in $2.5 trillion (approximately $33 billion) in India in 2019-2020. Despite the fact that taxes generate a significant portion of revenue, tax collection in India remains a challenge, with only a small percentage of the population paying taxes.
2. Non-Tax Revenue
In addition to taxes, the government earns money from non-tax sources such as income from government-owned businesses, interest on loans and other investments, penalties and fines, and so on. The Indian government, for example, generates revenue through state-owned enterprises such as the Oil and Natural Gas Corporation (ONGC) and Bharat Petroleum Corporation Limited (BPCL).
3. Disinvestment
The process of selling government-owned shares in public sector undertakings (PSUs) in order to raise funds and reduce the fiscal deficit is referred to as disinvestment. To support various programmes and initiatives, the Indian government has disinvested in PSUs such as Coal India Limited, Hindustan Aeronautics Limited (HAL), and Bharat Heavy Electricals Limited (BHEL) in recent years. Disinvestment is just one of the many ways the government is attempting to balance its books while
also promoting the country's growth and development.
4. Public Debt
The term 'public debt' refers to the money borrowed by the government from the general public through the issuance of bonds. Individuals, financial institutions, and corporations can purchase these bonds in the form of Treasury Bills, Government Securities, and Treasury Bonds. The
government uses the funds generated by public debt to fund its operations and development projects such as the construction of roads, schools, and hospitals. In 2019-2020, India's total public debt was approximately 89 trillion (approximately $1.2 trillion). While public debt helps the government finance its operations, it also increases the government's financial burden because public debt interest must be paid on a regular basis, which can have an impact on the government's overall financial stability.
5. Foreign Investment
Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) also generate revenue for the Indian government (FPI). FDI refers to a foreign entity's investment in an Indian company, whereas FPI refers to a foreign entity's investment in Indian stocks and bonds. Foreign investment provides the government with capital, helps the economy grow, and creates job opportunities. India received approximately $74 billion in foreign investment in 2019-2020.
#governmentofindia #taxes #disinvestment #nontaxrevenue #publicdebt #foreigninvestment #corequestions #corequestionsbytoi
0:00 - Introduction
0:51 - How govts earned money in olden times
1:11 - 5 sources of govt income
1:26 - Taxes
3:13 - Non-tax revenue
3:41 - Disinvestment
3:56 - Public debt
4:39 - Foreign investment
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