"Tamil Nadu committee proposes modernising state revenue definition and reporting standards"
Tax Buoyancy
ratio of percentage change in tax revenue to percentage change in GDP; below one means revenue grows slower than the economy.
GFSM 2014
IMF Government Finance Statistics Manual; international standard classifying government revenue separately from borrowing and asset transactions.
State governments in India derive their revenues from two broad streams: own revenues (own-tax and non-tax) and transfers from the Centre (share in central taxes and grants). The Finance Commission, constituted under Article 280 of the Constitution, determines the vertical share of the Centre's divisible tax pool that flows to States and the horizontal formula for distributing it among them. The 15th Finance Commission (2021–26) retained a 41% vertical devolution share for States. Despite this, many States face a structural gap between their expenditure obligations and their own revenue capacity, making fiscal self-reliance a persistent challenge.
Tax reforms in India since 1991 have focused primarily on the Centre's fiscal architecture, rationalising direct taxes, introducing GST through the Constitution (101st Amendment) Act, 2016, and broadening the formal economy. State-level revenue modernisation has lagged. States conventionally classify revenues into own-tax revenue, own non-tax revenue, central tax shares, and central grants. This classification, while functional, does not align with internationally accepted frameworks, creating gaps in how fiscal health is assessed and reported.
Tamil Nadu has historically been among India's better-performing States on fiscal and social indicators. Its own-tax revenue exceeded 10% of Gross State Domestic Product (GSDP) in the early 1990s and stood at 9.3% of GSDP in 2002–03. However, a study prepared for the 15th Finance Commission found this ratio declining from close to 9% of GSDP in 2006–07 to 6.4% in 2016–17, with tax buoyancy below one in eight of the fourteen years examined. By 2024–25, Tamil Nadu's own-tax revenue was budgeted at approximately 6.2% of GSDP, compared with 6.9% in Karnataka and 8.2% in Telangana.
A critical but often overlooked issue in Indian public finance is the blurring of the distinction between revenue and financing. The IMF's Government Finance Statistics Manual (GFSM 2014) provides a clear international standard. Under this framework, government revenue consists of taxes, social contributions, grants, and other revenue such as fees, charges, dividends, interest, royalties, and rents. Borrowing and asset sales are classified separately as financing transactions, not revenue.
In Indian practice, the term "resource mobilisation" is used loosely to bundle together taxes, user charges, market borrowings, green bonds, municipal bonds, blended finance, and asset monetisation. This conflation is analytically misleading. A market loan provides cash today but creates a financial liability. Selling a public asset exchanges one asset for another. Neither improves the government's underlying capacity to finance recurrent public services on a sustainable basis. …
Besides the welfare schemes, India needs deft management of inflation and unemployment to serve the poor and the underprivileged sections of the society. Discuss.
Do you agree that the Indian economy has recently experienced V-shaped recovery? Give reasons in support of your answer.
Consider the following statements regarding the IMF's Government Finance Statistics Manual (GFSM 2014):
1.Under GFSM 2014, government revenue includes taxes, social contributions, grants, fees, dividends, royalties, and rents.
2.Proceeds from market borrowings are classified as government revenue under GFSM 2014.
3.Proceeds from outright sale of a public asset are classified as government revenue under GFSM 2014.
4.Recurring concession fees and lease payments from public assets constitute non-tax revenue under GFSM 2014.
How many of the above statements are correct?
With reference to tax buoyancy, consider the following statements:
1.Tax buoyancy is defined as the ratio of the percentage change in tax revenue to the percentage change in nominal GDP.
2.A tax buoyancy value of less than one indicates that tax revenue is growing faster than the economy.
3.Sustained tax buoyancy below one erodes the government's revenue base as a share of GDP over time.
Which of the statements given above is/are correct?
Match the following Indian States with their own-tax revenue as a percentage of GSDP (budgeted, 2024–25) as documented in recent fiscal analyses:
State — Own-Tax Revenue (% of GSDP)
1.Tamil Nadu — (i) 8.2%
2.Karnataka — (ii) 6.9%
3.Telangana — (iii) 6.2%
Select the correct matching:
Consider the following items:
1.Taxes on goods and services
2.Proceeds from government bond issuance
3.Royalties from natural resource extraction
4.Dividends from state-owned enterprises
5.Proceeds from outright sale of a public sector undertaking
According to international public financial management standards (GFSM 2014), how many of the above constitute government revenue?
With reference to the 15th Finance Commission's findings on Tamil Nadu's fiscal performance, consider the following statements:
1.Tamil Nadu's own-tax revenue as a share of GSDP exceeded 10% in the early 1990s.
2.The 15th Finance Commission study found Tamil Nadu's own-tax revenue fell to 6.4% of GSDP by 2016–17.
3.Tamil Nadu's tax buoyancy was below one in all fourteen years examined in the 15th Finance Commission study.
4.Non-tax revenue accounted for only about 7% of Tamil Nadu's total revenue.
Which of the statements given above are correct?
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