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Centre’s revenues muted despite green shoots

by Raju K
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The Central Government’s non-debt receipts dipped year-on-year by 12.8% to Rs.1.9 trillion in September, in spite of the economy showing green shoots of recovery. Nonetheless, the fall was the lowest recorded in the current fiscal thus far, according to the Centre for Monitoring Indian Economy’s (CMIE) economic outlook report.

Net tax collections did report a seasonal pick up in September. These amounted to Rs.1.7 trillion, as compared to Rs.2.8 trillion cumulatively mobilised during the first five months of 2020-21. But, when compared year-on-year, these were lower by 14.2 per cent.

The tax collection growth slipping into a negative territory once again, after turning positive in August, is disheartening. From over 70 per cent year-on-year contraction in April-May 2020 and a little below 25 per cent contraction in June-July 2020, net tax collections had reported a smart 24 per cent growth in August 2020. This growth was exceptional. The Centre could not have sustained such high rate of tax growth in September. But, the fall registered in September appears a bit steep considering that many segments of the economy are showing signs of pick up, the report points out.

The fall in gross tax collections in September was even steeper at 16.2 per cent. The Centre managed to reduce its intensity at the net level by cutting cash outgo to States on account of their share in central taxes by 24.5 per cent.

Direct taxes

Among direct taxes, the gross collection of income tax grew by 2.7 per cent to Rs.487.5 billion. This is the first month since February when income tax collections grew year-on-year. This is a positive sign for the recovery of the economy as although personal income tax assessees account for less than five per cent of India’s population, contribution of their income to GDP is nearly 20 per cent. They can spearhead growth through their consumption expenditure.

Gross collection of corporate tax continued to be in the red. The 32.1 per cent year-on-year contraction at Rs.857.5 billion suggests that the whopping 800 per cent growth in profits before tax seen in the early results of 470 listed companies for the September quarter may not be representative of the performance of the entire industry. While large companies have done well, their smaller counterparts seem to be still struggling to recover.

Indirect taxes

Within indirect taxes, the gross collection of customs duty declined year-on-year by 18 per cent to Rs.80.5 billion in September as the country’s import bill shrank by 19.6 per cent during the month. GST collections in September amounted to Rs.439.3 billion. This was 4.3 per cent higher than the year-ago level. After slumping to Rs.167 billion in April, GST collections improved as the economy started opening up. GST collections averaged Rs.437 billion in the last four months. This is higher than last year’s average monthly collection of Rs.501 billion.

Excise duty collection continued to report a double-digit growth for the fourth consecutive month. In September, it amounted to Rs.283.6 billion, 42.5 per cent higher than the corresponding month a year ago. The robust growth in excise collection can be attributed to the steep hike in tax rates. The Centre had hiked excise duty on petrol and diesel aggressively from Rs.22.98 per litre and Rs.18.83 per litre, respectively, on March 14 to Rs.32.98 per litre and Rs.31.83 per litre by May 6.

Non-tax revenues of the Centre also declined year-on-year by a steep 41.2 per cent to Rs.61.3 billion. This was mainly on account of a 92.4 per cent contraction in dividend receipts from public sector undertakings. In August too, the Centre’s non-tax revenues had slumped year-on-year by 60.2 per cent due to lower transfer of surplus by the RBI.

Disinvestment

The Centre had set an ambitious disinvestment target of Rs.2.1 trillion for 2020-21. But it managed to achieve only three per cent of it in the first half of the fiscal. Its revenue receipts, at Rs.5.5 trillion in April-September, were also only 27.3 per cent of its annual target. Usually, by September, the Centre achieves more than 40 per cent of its annual revenue target. The Centre has implicitly admitted that it cannot meet its non-debt receipts target for 2020-21 by expanding its annual borrowings programme by Rs.4.2 trillion to Rs.12 trillion. At the same time, it has started altering its strategies and devising new ways for revenue generation in order to avoid any further fiscal slippage. As per media reports, the Centre is looking to raise excise duty on petrol and diesel by up to Rs.5 per litre to generate additional revenues.

Besides, the Centre is planning to exit BEML, Container Corporation, Shipping Corporation of India, Pawan Hans and Central Electronics. It has also asked eight PSUs, including Coal India, NTPC, NMDC and Engineers India, to buy back their shares in order to avoid any further revenue slippage.

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