Record GST inflows are heartening, but major risks lie ahead

India’s GST regime could not have hoped for a better start to its fifth year. Revenues from the tax hit an all-time high of ₹1,41,384 crore in April, surpassing the previous month’s record of about ₹1.24 lakh crore. After a disastrous period for the economy following last year’s national lockdown, GST revenues hit ₹1.05 lakh crore in October and have shown a steady uptick since then, in tandem with hopes of a sustained recovery. April’s numbers, which are essentially driven by the transactions in March, were bolstered by heightened economic activity, no doubt. The spectre of rising COVID-19 cases and the fear of an impending lockdown could also have driven people to make advance purchases in anticipation. Moreover, firms in the process of closing annual accounts may have remitted higher GST based on audit advice, while a gradual tightening of the compliance regime, and pro-active co-ordinated probes against taxpayers using fake bills to evade liabilities, have played no small part. In April 2020, GST collections had dipped to a mere ₹32,172 crore after all activity ground to a halt at four hours’ notice in late March. Economic activity may not yet be as badly affected amidst the pandemic’s second wave.

So far, going by the restrictions imposed in several States, supply chain disruptions are not expected to be as challenging. However, weakening demand will trigger a recalibration of production and investment plans, some of which has begun to kick in. Consider some indicators — major two-wheeler producers saw sales plummet by around a third in April, compared to March. Plant shutdowns have gradually begun to reduce inventory build-ups. In a report, ‘Wall of Worry’, Crisil has warned of several indicators sliding since mid-April, including GST e-way bills which fell by over 6%, two weeks in a row. Manufacturing orders’ growth hit an eight-month low in April, as per IHS Markit. And the pandemic surge and desperate shortage of health infrastructure have prompted industry leaders to pitch for a stringent lockdown. It would be foolhardy now to expect GST and other tax revenues to stay robust till the government gets a better grip on infections and vaccinations. With the Assembly polls over, the Centre must urgently convene the GST Council. To add to what is already pending — rationalisation of GST rate slabs, a rejig of rates on critical pandemic supplies and the prickly issue of bringing fuel under GST — the Council must begin gearing up early for shortfalls in GST compensation to States that may arise this year. India can ill-afford a repeat of the 2020 face-off between the Centre and States that almost upended the very spirit of co-operative federalism the GST emerged from.