India Taxes Continue to grow 9%+ even when economy was slowing

GDP Statistics were out yesterday!

We plotted GDP growth (Nominal) with Inflation and found this

India’s GDP grew 10.4% annual for the last 6 years

But Net Taxes grew a massive 14.8% annually during the same period.

Even as the economy slowed down in 2018-19, Net Taxes continued to grow at 15.5% in 2018-19 and 9% in the last financial year. The lower growth last year was due to the corporate tax cut late last year after the economy slowed down significantly

Remember these Taxes include both Central and State Taxes

On an average the Central Government has not been very consumption friendly for example increasing Petrol taxes when Crude prices crashed. These policies continued even during the recent COVID Atmanirbhar Bharat package that did not place emphasis on consumption.

Private Financial Consumption Expenditure per capita went up 10% per annum during the last 6 years. A lot of it driven by debt as personal loans.

(Home Loans, Cards, Auto Loans and such) outstanding to banks went up 16.2% per annum during last 6 years even as per capita GDP went up just 9.2%. Which means consumers were borrowing at a faster rate than income growth to fuel their lifestyles.

However, this strategy of higher taxes and consumption being driven by household loans crashed once the NBFC crisis started. That squeezed loans being given to households which in turn slowed down the consumption engine.

The Govt is attempting to get NBFCs to lend again but with consumer confidence at historic lows due to economic uncertainty, it is unlikely consumers will be dying to take loans. There is a lot of work ahead.