Consider the following statements: 1)Tax revenue as a percent of GDP of India has steadily increased in the last decade. 2) Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.

Consider the following statements:

Tax revenue as a percent of GDP of India has steadily increased in the last decade.
Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.

Which of the statements given above is/are correct?

1 only
2 only
Both 1 and 2
Neither 1 nor 2

Explanation

Statement 1 is incorrect

The tax-to-GDP ratio of a country reflects the proportion of economic activity translating into tax collections for the government. It depends on various factors such as tax rates, number of taxpayers and tax exemptions. The revenue as a percent of GDP of India has not steadily increased as shown in graph below:

Line graph showing Tax-GDP ratio of Central Government from 1950-51 to 2015-16, with values on vertical axis ranging from 0% to 14%. The graph highlights a gradual increase from around 4% in 1950 to peaks above 10% in early 1980s and around 12% in 2005-06, followed by fluctuations and stabilization near 10% after 2010.

Statement 2 is incorrect

Fiscal deficit indicates the borrowings of the government used to finance its expenditure. Fiscal deficit as a percent of GDP of India has not steadily increased in the last decade shown in figure given below:

Line graph showing fiscal deficit and revenue deficit as percentages of GDP from 2000-01 to 2016-17, with fiscal deficit represented by a blue line with triangles and revenue deficit by a green line with squares. The graph highlights a peak in both deficits around 2009-10, followed by a gradual decline, ending at 3.5% for fiscal deficit and 2.3% for revenue deficit in 2016-17.

Answer: (d) Neither 1 nor 2; Difficulty Level: Hard

2017, PYQs