RAS question
India's tax-to-GDP ratio is approximately:
Correct answer: (D) About 11-12% (Centre only).
India's Centre-level gross tax-to-GDP ratio is approximately 11-12%.
Explanation
India's Centre-level tax-to-GDP ratio refers to the Centre's gross tax revenue as a share of GDP, not the combined Centre-plus-State figure. The Reserve Bank of India RBI Bulletin table on Central Government Finances places gross tax revenue at 11.6% of GDP in 2024-25 revised estimates and 12.0% in 2025-26 budget estimates, making 11-12% the approximate Centre-level ratio. The useful exam distinction is that including state taxes takes the broader tax take to about 17-18%, while the OECD average is around 34%. Budget 2025-26's push for better tax buoyancy through simpler compliance and a wider base fits this public-finance context, but it does not change the approximate Centre-only ratio.
Why the other options are wrong
- (A) About 5% is far below the Centre's gross tax revenue ratio in the RBI table, around 11.6-12.0% of GDP.
- (B) About 20% is above both the Centre-only measure of 11-12% and the broader Centre-plus-State estimate of about 17-18%.
- (C) About 25% is too high for India and is closer to the higher tax ratios associated with developed-country comparisons, not the Centre's current ratio.
Concept
Public finance indicators under Indian Economy include the tax-to-GDP ratio, which measures the government's tax capacity relative to national output. Fiscal consolidation, revenue mobilisation and Centre-State fiscal comparisons are standard RAS budget-analysis themes.