Revenue from the Goods & Services Tax (GST) continues to be on a roll. The revenue collection for October 2023 at ₹1.72,003 crore was the second highest-next only to April 2023. The average gross monthly GST collection in the financial year (FY) 2023-24 till October is an impressive ₹.1.66 lakh crore.
If the average monthly collections going forward for the next 5 months of this financial year is the same, we are looking at another ₹8.3 lakh crore. We should close the year at a minimum of ₹19.92 lakh crore, comfortably above the revised budget target for GST.
The robust performance of GST has rubbed off on direct taxes also. Gross direct taxes collection for FY 2023-24 up to November 9 were ₹12.37 crore a 17.59% year over year (YoY) growth. Both Corporate Income Tax and Personal Income Tax grew by 7.13% and 28.29% respectively. The close cooperation between both the Boards of Indirect Taxes and Direct Taxes is certainly bearing fruit.
Comfortable Revenue Position
The fiscal performance in the first half of the financial year suggests that the position is reasonably comfortable. This despite the multiple headwinds. The gross tax collection for the first 6 months of FY 2023-24 has increased by 16.3% compared to the same period of last year.
Customs revenue has also grown by 25.4% in the first half. However, the excise duty collection has underperformed — essentially due to the cut on excise duty on both petrol and diesel along with the reduction in special excise duty on crude.
The RBI had announced a surplus of ₹87,416 crore-much higher than the budgeted amount of ₹48,000 crore under the dividend/surplus transfer of the RBI, nationalised banks and financial institutions.
Revenue and Capital Expenditure
Revenue expenditure in the first half was higher by 10% as compared to the same period last year. While spending has increased towards servicing of debts, defence and fertilisers, it has decreased towards food & public distribution, transfer to States, agriculture and school and higher education.
Capital expenditure (capex) continues to witness a strong push. There has been a growth of 48% as compared to last year. The main heads of capex expenditure are in roads, transport & infrastructure, railways, defence, telecommunication, housing & urban affairs.
Credit Offtake
Credit offtake continues to grow — increasing by 20.4% YoY. Deposits too have grown by 13.5% YoY. Inflation has eased to a 4-month low of 4.9% in October. The States have also budgeted for a major capex thrust —we would need to wait to see how this pans out. All this augurs well.
Next Few Months Challenging
Having said that, the next few months of this fiscal year are bound to be challenging. The fiscal deficit has increased to ₹7 lakh crore. It currently stands at 39.3% of the budget estimate. With elections fast approaching expenditure and the deficit are only bound to increase. The total subsidy bill stood at ₹2.1 lakh crore in the first half of FY 2023-24. This is the highest in the last four years.
The government’s fiscal deficit target is 5.9% — a tight rein will need to be kept to ensure that this is not breached. CMIE’s data suggest that there has been a steep slowdown in net new projects in the first half of 2023-24.
What little has happened was largely driven by Air India and Indigo’s aircraft purchase plans. Disinvestment continues to be behind the target. At ₹6949 crore it has achieved just 13.6% of the budgeted target in the first half of FY 2023-24. The suggestions so far are that the planned big-ticket disinvestments of IDBI Bank, Shipping Corporation of India will get delayed.
The prospects of Kharif harvest are not comforting. Rabi sowing is also expected to be hit because of low reservoir levels in major agricultural states. Index of Industrial Production (IIP) growth has slowed sharply to 5.8% in September from 10.8% in August. Both the manufacturing and electricity have recorded a sharp sequential deceleration. Rural demand has been slowing down. Tractor sales contracted for the 7th straight month.
Rural joblessness grew by 10%, the highest level seen in a long time. India’s merchandise trade deficit grew to a record high of US$ 31.46 billion. Exports did grow on a low base. Imports also grew, led by gold, electronic goods, and crude. Services exports also fell to US$ 28.70 billion as against US$ 29.37 billion in September. The sluggish global demand continues to be an issue. The continuing war in Ukraine and the Hamas-Israel war have added to the uncertainties. Foreign Portfolio Investment (FPI) outflows continues —it crossed ₹10,000 crore in September.
The International Monetary Fund (IMF) has projected India’s Gross Domestic Production (GDP) growth at 6.3%. The RBI has projected GDP growth at 6.5% while rating agencies have projected the same to be between 6.5% to as much as 7%.
There were suggestions that India has become a US$ 4 trillion economy. This would require a 10% growth which certainly is not the case at present. This could be possible in 2024-25 if several favourable factors come into play.
Further, the country would need to focus on issues which are under its control —for instance ensuring a conducive business environment being created. There are reports of ‘indiscriminate’ show cause notices being issued —the two Boards need to suitably sensitise the field formations. In any case the adjudication process should be expedited. The GST Tribunal needs to be up and running without any loss of time. The key attributes of a good tax system — fairness, simplicity, transparency, and administrative ease should never be lost sight of.
Source: https://www.cnbctv18.com/finance/gst-collection-2023-direct-and-indirect-taxes-capex-gdp-growth-critical-months-ahead-18394871.htm
As far as the revenue and tax collection is concerned the next few months of this fiscal year are bound to be challenging. The fiscal deficit has increased to ₹7 lakh crore. It currently stands at 39.3% of the budget estimate. With elections fast approaching expenditure and the deficit are only bound to increase, observes former Chairman of the Central Board of Indirect Taxes & Customs —Najib Shah.