EY report: India will have to increase the pace of tax growth to 1.5%, it is necessary to do so to become a developed nation

If India is to be a developed economy with a growth rate in its economy at 6.5% to 7.0%, growth in taxation as a fraction in terms of its relation with GDP will have to be increased at 1.2-1.5%. This will allow a boost in infrastructure expansion, and social sector expenditure, as well as create necessary capital in order to preserve fiscal discipline.

EY said in a report on Wednesday, the government needs to strengthen revenue collection. The tax-GDP ratio will have to be increased from the estimated 12% in 2025-26 (budget estimate) to 14% by 2030-31. According to the report, India's fiscal strategy should focus on increasing tax revenue in proportion to the change in GDP, prudent expenditure management, and continued structural reforms to ensure sustainable growth.

According to the EY India Economy Watch report, gross tax revenue growth has gradually decreased in the last three years. It was 1.4% in 2023-24, which came down to 1.15% in 2024-25. It is estimated to be 1.07% of the budget for 2025-26. The growth rate is likely to be 6.3-6.8% in the next financial year and 6.4% in the current financial year.