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Sudhanshu Ranade

Chennai, June 5 Rapid growth has pushed the ‘current price’ figure for national per capita income up to Rs 33,299 for FY 2007/8. The corresponding Rs 22,914 figure for consumption is lower, and has been growing slower. Adjusting for price changes, it turns out that per capita income and consumption grew at a compounded annual growth rates (CAGR) of 8 and 6.1 per cent respectively between 2005/6 and 2007/8.

Intuitively one would expect consumption to start growing faster than income a few years or decades down the line; after investments cease their acceleration, and earlier investments begin to bear fruit. But, as instanced by the defence-related capital expenditure of Rs 100,000 crores a year, there is no hard and fast rule about this.

Central Government debt rose almost 20 per cent between December 2005 and December 2007 (CAGR 9.4%). Despite this, the debt/GDP ratio for 2007 was well below the 1999 level, but there has a reversal of the direction in which the ratio was earlier headed.

The bright side is that total revenue receipts increased by a breathtaking 50 per cent between 2005/6 and 2007/8 because of the phenomenal increase in direct tax revenues which the Finance Minister, Mr P. Chidambaram, has helped bring about. But for the fact that 25 per cent of tax revenues have to be shared with the states, total revenue would have gone up another five percentage points.

Still, there are problems lurking on the horizon. First, though the next elections are still one year away, the Centre’s debts and commitments have gone up by more than Rs 100,000 crore since January 2008. Second, despite the increase in the percentage of the Centre’s share of revenue receipts to debt, from 18 per cent in 2005/06 to 23 per cent in 2007/08, even if the entire increment is used for a drawdown of debt, it will take years to bring the debt/GDP ratio down to pre-2005 levels.

Finally, it will not be possible to indefinitely sustain the phenomenal growth of direct taxes. As you keep tap, tap, tapping away at the backlog of hitherto untapped potential, you are bound to reach a stage when there is nothing left to tap that has not already been tapped.

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