Achieving Fiscal Growth: The Role of Tax Buoyancy in India's Economic Future

The EY report highlights the importance of maintaining tax buoyancy between 1.2-1.5 to achieve India's growth target of 6.5-7%. It suggests boosting revenue mobilization and raising the tax-to-GDP ratio from 12% to 14% by FY31. Striking a balance between fiscal consolidation and growth is crucial.

A recent EY report underscores the significance of maintaining tax buoyancy in the range of 1.2-1.5 to hit India's growth ambition of 6.5-7% annually. The report suggests that the government should focus on increasing the tax-to-GDP ratio from 12% in FY26 to 14% by FY31. This adjustment is crucial for ensuring sustainable economic growth.

The current fiscal strategies, as noted by EY India Chief Policy Advisor D K Srivastava, aim to balance fiscal consolidation with growth efforts. Srivastava emphasizes that maintaining the optimal buoyancy is imperative for facilitating infrastructure development and social sector investments, forming the backbone of India's 'Viksit Bharat' vision.

Indian economy is on a projected growth path of 6.3%-6.8% next fiscal, with the current year's GDP growth estimated at 6.4%. The reduction of fiscal deficit over the years has been noted, and a targeted strategy is required to achieve the FRBM consistent deficit level. Sustained improvements in tax buoyancy will play a pivotal role in this economic balancing act.