Page 25 - Nuvama | IC Report 2023

INDIA: THE 5D ADVANTAGE

Big reform push over last few years
Exhibit 2:
Tax reforms Improving Real Estate Reforms
(efficient tax taxation structure reforms undertaken
across segments
collections)
Ease of doing Access to basic
DBT business amenities
(efficient
spending) Ease of exit Digital
infrastructure

Government Corporates Households

Source: Nuvama Research
Government: Modernising fiscal machinery

A modern economy needs an efficient government machinery. A government’s ability to collect taxes
efficiently and spend them efficiently are the hallmarks of a modern economy. Historically, India’s
fiscal machinery was riddled with large tax evasions and heavy leakages in public spending, and poorly
targeted subsidies–a huge drag on economic growth. But over the last decade or so, India has taken
momentous strides to jack up its capacity to collect taxes and spend them efficiently.
Tax reforms: Not just a wider net, improved collections too

In low-income countries, economic activity is usually quite informal. As a result, the tax base
remains narrow and tax compliance poor. In view of this, India’s policymakers have undertaken Post-covid,
several such reforms. The toughest and the most critical of these has been the rollout of GST— India’s tax
the Goods and Services Tax. collections have
grown at ~1.5x
The GST essentially incentivises agents across the supply chain to pay taxes This is achieved via GST’s of NGDP growth
architecture, which entails a system of input tax credits. This significantly improves tax compliance versus in line
across the supply chain. growth during
In fact, GST helps improve compliance on the direct tax front as more information becomes FY10–20
available to tax authorities through GST architecture. It is no surprise therefore that since the GST
was implemented, barring initial hiccups, the number of tax filers and tax collections have surged.
For instance, post-covid, India’s tax collections have grown ~1.5x of NGDP growth versus gross tax
collection growth in line with nominal GDP during FY10–20. This allowed the government to re-channel
extra collections into capital formation.

23