RAS question
India's tax-to-GDP ratio is approximately:
Correct answer: (D) About 11-12% (Centre only).
At the Centre level, India's gross tax-to-GDP ratio is approximately 11-12%.
Explanation
India's Centre-level tax-to-GDP ratio is the Centre's gross tax revenue as a share of GDP; it is not the combined Centre-and-State figure. The Reserve Bank of India's Bulletin table on Central Government Finances puts gross tax revenue at 11.6% of GDP in the 2024-25 revised estimates and 12.0% in the 2025-26 budget estimates. Thus, 11-12% is the appropriate approximate range for the Centre. For the exam, distinguish this from the broader tax take: including State taxes raises the total to about 17-18%, while the OECD average is around 34%. Budget 2025-26 seeks better tax buoyancy through simpler compliance and a wider tax base, but that policy direction does not alter the approximate Centre-only ratio.
Why the other options are wrong
- (A) About 5% is far below the Centre's gross tax revenue ratio: the RBI Bulletin table gives 11.6% of GDP for 2024-25 and 12.0% for 2025-26.
- (B) About 20% exceeds both the Centre-only ratio of 11-12% and the broader Centre-plus-State estimate of about 17-18%.
- (C) About 25% is well above India's current Centre-level ratio and is closer to the higher tax ratios seen in developed-country comparisons.
Concept
In the Indian Economy, the tax-to-GDP ratio is a public-finance indicator of the government's tax capacity relative to national output. Fiscal consolidation, revenue mobilisation and Centre-State fiscal comparisons are standard RAS budget-analysis themes.