Resource Mobilisation

For any country, mobilisation of resources is of paramount importance to achieving its developmental goals. Resources can be natural, human or financial resources. In the context of the economy, mobilisation of resources is generally referred to as mobilisation of financial resources. The government has various sources for mobilising financial resources, such as taxation, borrowings, and non-tax revenues. For a developing country like India, mobilisation of resources is difficult due to some challenges such as tax evasion, a falling savings rate, weak taxation policies, etc. The government has tried to deal with such challenges by taking steps such as rationalising subsidies, increasing tax compliance, curbing tax evasion, formalising the economy, and other such steps.

Something that has some value or utility is a resource. An economy needs certain resources to function. In this context, there are primarily three types of resources available in any economy:

• Natural Resources: materials or substances that are naturally available on earth and can support life or meet human needs are called natural resources. They can be classified into two types:
  • Biotic resources: these are obtained or extracted from living organisms in a biosphere. For example, forests, marine products, animals, etc.
  • Abiotic resources: these are naturally occurring substances that are non-living in nature. For example, water, air, silver, gold, and different types of minerals and ores
• Human Resources: they are considered the most important asset for a country. Humans are considered important resources because of their capability to convert natural resources into valuable resources. They can accomplish such a task by employing their knowledge, skills, and technology.
• Financial Resources: these are tangible or intangible assets or funds that can be deployed by an organisation or a country to accomplish desired outcomes. In other words, they are resources that can be measured in terms of money.

Mobilisation of Resources: it is a management process of identification, organisation, assembling, and utilisation of various resources. Any economy or country requires natural, human, and financial resources for optimal functioning.

• Welfare State: India is a welfare state. The social welfare of a large population is the responsibility of the government. Hence, mobilisation of resources is a priority for the government.
• Equal distribution of resources: The Indian constitution under Article 39 (b), directs the state to ensure that there is an equal distribution of resources among the people.
• Boost domestic utilisation of resources: unlock and utilise full potential of the country in terms of natural, human, and financial resources.
• Self-reliance: The vision of ‘Atmanirbhar Bharat’ is to make India and its people self-reliant in all aspects, and the country is not overly reliant on any country for resources.
• Sustainable Development: Agenda 2030 emphasises formulating national strategies for domestic resource mobilisation for achieving sustainable development goals (SDGs).

Financial Resource Mobilisation is the exercise of collecting or obtaining financial resources or assets or funds from diverse sources with the aim of channelling them towards a common collective goal. In the case of the Government, financial resource mobilisation is not limited to taxation; rather, it can be acquired from various sources. Following are the sources of financial resource mobilisation:

• Taxation: levying tax is the sovereign right of any government. In simple terms, tax is a charge imposed by any authority or government. Taxes are a very important source of resource mobilisation for any government. They are levied by the central, state or local government. They are mainly of two types:
  • Direct Tax: It is levied on and paid by the individual or an entity, and they cannot shift the burden on any other individual or entity. For example, income tax, securities transaction tax, etc.
    • Benefits of direct taxes:
      • Aids in tackling inflation in the economy
      • More equitable in nature as higher income individual pay higher rate
      • Help in reducing inequality in the society
  • Indirect Tax: These taxes are imposed on a product or service. But, the burden of this tax is shifted to others. For example, Goods and Services Tax (GST), excise duty on petrol, etc.
    • Benefits of indirect taxes:
      • Collection is easier
      • Much larger coverage as every individual contributes
      • Promote savings in the economy as they discourage consumption
• Non-Tax Revenue: these are the non-tax revenue sources that do create liability or debt on the government. These include dividend income from Public Sector Undertakings, grants, disinvestment receipts, interest on bonds held, etc. But the total share of non-tax revenue is smaller than tax revenue.
• Public Debt and Borrowings: there is considerable gap between government’s revenue and expenditure. To bridge this gap the government opts for borrowings. A public debt is a loan taken by the government from individuals, banks, or from other sources within the country or from outside the country. These borrowings can be long term government bonds, external commercial borrowings, short term borrowings such as treasury bills, etc. A manageable level of public debt is essential for promoting economic growth and sustainable development.

• Falling savings rate: According to RBI data, the household saving rate was 5.1% of GDP in 2023, down from the high of 37% of GDP in the 2000s decade. A Lower savings rate leads to increased borrowing costs and slowed economic growth.
• Unmet disinvestment targets: ambitious targets set in the budget were not met for the last five years. This means less financial leeway for the government.
• Non-Performing Assets: High NPAs in the banking sector affect the bank's financial health. Banks have to keep provisions for NPAs, which affects their profitability. A healthy banking sector is crucial for mobilising funds in the economy.
• Low tax-to-GDP ratio: India’s tax-to-GDP ratio is around 11.7% of the GDP, which is considerably lower than that of developed nations (34.1% (2021) for OECD nations and 25.9% (2021) for European Nations). Low tax-to-GDP leaves less fiscal space for the government.
• Weak taxation policies: taxation policies are not broad based and a large population is under the tax net. Also, there are various exemptions available to taxpayers that result in lower collection.
• Tax evasion: The Indian economy is plagued by the existence of unaccounted black money, which makes it easier for tax evasion. Other factors, such as high tax rates, complexities in tax filings, and weak enforcement, also contribute to tax evasion.
• FRBM Act and fiscal consolidation: To instil fiscal discipline and responsibility in the country, the Fiscal Responsibility and Budget Management Act was enacted, which sets specific targets to reduce the fiscal deficit and revenue expenditure of the government. This restricts the government’s ability to raise funds.

• International Cooperation on curbing base erosion and profit shifting: Multinational Corporation (MNCs) use base erosion and profit shifting to avoid paying taxes. To curb this, various multilateral platforms have been discussing an international agreement that targets such practices. For example, OECD led framework for a Global Minimum Tax that is a two-pillared solution to address the problem.
• Achieving the divestment target set for the financial year to raise non-tax revenue.
• Continuing the reforms in the banking sector to strengthen banks so that they are adequately capitalised to deal with the NPA problem.
• Bringing tax reforms to widen the tax base, increase compliance, curb tax evasion, and increase tax-to-GDP ratio.
• Promoting resource efficiency through adoption of advanced technologies, investment in Research and Development, etc.
• Bringing policy reforms that improve the regulatory environment in the country and remove administrative or bureaucratic roadblocks.

Nations around the world are witnessing increased activities and demand for state led socio-economic development. India being a developing country with a large population requires a large amount of financial resources to fulfil its responsibility as a welfare state. Therefore, there is a need for increased mobilisation of financial resources in the country. For this, effective and efficient tax collection, global tax cooperation and bringing policy reforms are the need of the hour.