The fall­out of de­te­ri­o­rat­ing macros on re­quired GST rev­enue run rate

Mint Asia ST - - Mark To Market - HAR­SHA JETH­MALANI

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.

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