The fallout of deteriorating macros on required GST revenue run rate
With the rupee tumbling to fresh lows against the US dollar and oil prices on the boil, India’s macroeconomic condition is worsening. Both these factors playing out together have accelerated the pressure on government finances.
True, finance minister Arun Jaitley is confident of meeting the fiscal deficit target of 3.3%. But the unimpressive trend of GST (goods and services tax) collections poses a risk to the fiscal math.
As a result, the required monthly run rate for GST collections for the rest of the year is heading northward. GST collection for the month of August (collected in September) stood at ₹ 94,442 crore against ₹ 93,690 crore in the earlier month. Although collections in September marked a slight increase from the preceding month, it is still short of the ₹ 1 trillion monthly target set by the government ( see chart).
Some tax experts, who did not want to be named, said they are now working with a revised monthly revenue collection estimate of ₹ 1.15 trillion.
According to brokerage house Kotak Institutional Equities, on a cash accounting basis, collections in the first half of FY19 are likely at an average of around ₹ 90,000 crore per month, implying a required run rate of ₹ 1.19 trillion per month for the second half. “This translates to month-on-month growth of 8% in Central GST, State GST, and Integrated GST for the next six months. It is unlikely that such a growth in momentum is possible in the near term,” it said in a report dated 3 October.
Concurring with that analysis, research house CLSA Ltd said, “Overall, we estimate that the central government needs a ~53% jump in its GST collections for the remainder of the fiscal year to meet its budgeted estimates, unlikely to happen.”
As for the direct tax collections, there is little to cheer on that front too. India’s net direct tax collections for the first half of FY19 stood at ₹ 4.44 trillion, up 14% over the year-ago period.
Direct tax collections in the six months ended September are 38.6% of the budgeted estimates of ₹ 11.5 trillion for FY19, adding to the challenge for the central government to stick to its fiscal deficit target.
One way out for the government to achieve the budgeted target could be by reducing its revenue expenditure, suggest economists. However, in a pre-election year that’s easier said than done.
Meanwhile, an upswing in GST collections is anticipated in the forthcoming festive season, but sustaining that is the key here. To conclude, unless GST revenue collections improve massively from here on, a fiscal miss looks unavoidable.