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Fiscal Policy & Government Budgets
How governments use taxation and spending to influence the economy — deficits, debt, stimulus, and austerity.
intermediate2 hours5 modules
Module 1 of 5 · 15 min read
Government Revenue
Sources of tax revenue — income tax, GST, corporate tax, customs.
To spend, the government must first earn. Understanding revenue sources is essential to understanding fiscal policy.
Tax Revenue
Taxes are the primary source of government revenue. India's major taxes:
- GST (Goods and Services Tax) — India's unified indirect tax, replacing a patchwork of state and central taxes. Collected on consumption.
- Income tax — Progressive tax on individual earnings. Higher earners pay a higher percentage.
- Corporate tax — Tax on company profits. India reduced this to 22% (25% for new firms) in 2019 to attract investment.
- Customs duty — Tax on imports. Used for both revenue and protecting domestic industries.
Non-Tax Revenue
- Disinvestment — Government selling its stake in public sector companies (LIC IPO, for example)
- Dividends — Profits from public sector enterprises and RBI surplus
- Fees and charges — Spectrum auction, mining royalties, user charges
India's Tax Challenge
India's tax-to-GDP ratio is about 17% — lower than the OECD average of 34%. A narrow tax base (only ~7% of Indians file returns) and a large informal economy limit revenue collection. Widening the tax base without overburdening the middle class is a key challenge.