Healthy GST mop-up may not be enough to address fiscal deficit woes
With the government trying to revive a stuttering economy, the Goods and Services Tax (GST) mop-up for November is expected to provide some respite.
The GST revenue collection in November stood at Rs 1.03 lakh crore – the third highest since its implementation in 2017. The November collection saw a 6 percent increase year-on-year, from the same period last year.
While Central GST (CGST) was Rs 19,592 crore, State GST (SGST) stood at Rs 27,144 crore in November 2019.
The revenue from GST has seen a rise after two months of negative growth. The October 2019 collection had fallen 5.3 percent y-o-y. The September 2019 collection was Rs 91,916 crore, the lowest since February 2018.
“Crossing Rs 1 trillion in a festive month after a few months of tepid collections would act as sentiment-booster and help in keeping the fiscal deficit under control. Hoping that this trend continues in the coming months,” said MS Mani, Partner, Deloitte India.
However, an improvement in GST collections may not be a solution to all the worries of the government. According to government data, net tax revenue collected till September stood at Rs 6.07 lakh crore, which is 36.8 percent of its Budget target of Rs 16.49 lakh crore.
According to data published by the Controller and Auditor General of Accounts, in 2018-19, the government had collected 39.4 per cent (Rs 5.8 lakh crore) of the total target of Rs 14.8 lakh crore.
Data also shows a considerable decline in the net collection of both direct and indirect taxes. The Centre collected total corporate tax of Rs 2.49 lakh crore this year so far, far less than the full-year target of Rs 7.66 lakh crore. Finance Minister Nirmala Sitharaman’s announcement of reduction in corporate tax to 25 per cent would lead to further fall in tax revenue collection.
On the direct tax front, the government could mop-up only 4.7 percent more so far this year, with the direct tax kitty growing to Rs 5.50 lakh crore as of September 17, up from Rs 5.25 lakh crore a year-ago.
The government’s direct tax collection target for the financial year 2019-20 stood at Rs 13.35 lakh crore. The target is 16 per cent higher than the Budget estimate of Rs 11.50 lakh crore and 11.25 per cent higher than the revised estimate of Rs 12 lakh crore.
The worrisome tax collection trends lead to the question of whether the government will be able to meet its budgeted fiscal deficit target of 3.3 percent of the gross domestic product.
According to government data released on November 29, India reported a fiscal deficit of Rs 7.3 lakh crore during April-October, which translates to 102.4 percent of the full year target. The deficit exceeded the 2019-20 budgeted target of Rs 7.04 lakh crore.
“Economic growth in FY20 is likely to be 5.6 percent and this does not instill confidence in achievement of 3.3 percent fiscal deficit target unless there is steep expenditure reduction, which in the present scenario looks unlikely,” said Devendra Pant, Chief Economist at India Ratings.
Total expenditure during April-October stood at Rs 16.54 lakh crore, which is 59.4 percent of the Budget Estimate. The government has pegged its total expenditure for 2019-20 at Rs 27.86 lakh crore.
“The government has increased the expenditure towards asset creation while the revenue expenditure has marginally declined during the first seven months of 2019-20,” said Madan Sabnavis, chief economist with CARE Ratings.
The Indian economy is battling a slowdown. India’s GDP grew 4.5 percent in July-September 2019, the lowest since the fourth quarter of 2012-13, confirming fears of a deepening slowdown in the economy as households aren’t spending enough to buoy demand and companies aren’t adding capacities or hiring more.
India is now staring at the real possibility of a sub-6 percent annual GDP growth in 2019-20, the first since 2012, amid a stuttering world economy and plunging sentiments at home.
According to Society of Indian Automobile Manufacturers (SIAM) data, passenger vehicle sales declined 23.7 percent during July-September.
Private final consumption expenditure (PFCE), a proxy to measure household spending, grew 5.06 percent (at constant) prices in July-September 2019 compared to 9.8 percent in the same quarter last year.
Despite the government’s efforts to revive economic growth, data points at the possibility of it missing the fiscal deficit target of 3.3 per cent of the GDP.Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.