The provisional goods and services tax (GST) revenue figures for May 2021 have sprung a pleasant surprise. The revenue of Rs 1, 02, 709 crore is the eighth consecutive month where revenue has crossed the significant Rs 1 lakh crore mark. Though lesser than the record Rs 1.41 lakh crore revenue of the previous month, it is still more than the revenue for the corresponding month of the previous year. Given the fact that as a relaxation measure, taxpayers with a turnover of less than Rs 5 crore have time till the first week of July to file their returns, the actual revenue could increase. To appreciate how good a revenue performance this has been we need to juxtapose the revenue figures with the grim macro-economic data.
The provisional estimates for FY21 GDP suggest a contraction of minus 7.3 percent as compared to 4 percent in 2019-20. India’s GDP contraction is among the worst in the world. The contraction would have been worse—but for the growth of 1.6 percent in the fourth quarter of FY21. Real GDP at constant (2011-12) prices in the year 2020-21 is estimated to be Rs 135.13 lakh crore as against the estimate of GDP for the year 2019-20 of Rs 145.69 lakh crore.
Gross value addition at basic prices has dropped by 6.2 percent in 2020-21. The numbers reflect the impact the pandemic has had on the economy. Barring agriculture and electricity, all other sectors have fared poorly—manufacturing (minus 7.2 percent) construction (minus 8.5 percent) mining (minus 8.5 percent). The manufacturing activity measured by the IHS Markit Purchasing Managers Index dropped from 55.5 to 50.8 points in May, pointing to the weakest pace of expansion in sales, production, and input buying in ten months.
The performance of the service sector, a major contributor to the GDP, has also been poor. The IHS Markit India Services PMI shows a decline to 46.4 in May 2021 from 54.0 in the previous month, and below market expectations of 49. The reading pointed to the first-time contraction in the sector since last September, amid a resurgence of COVID-19 cases.
All this has also meant a steep increase in the unemployment figures. As per CMIE, the unemployment rate for the week ending June 5 was 12.98 percent. The CMIE estimates that more than 15 million jobs were lost in May—the fourth consecutive month of fall in employment. This reflects both urban and rural sectors with the loss of non-farm jobs in April and May 21 being estimated at more than 25 million. What this suggests is that the MSME/SME sectors so critical for the economy have been severely impacted.
The stock markets which represent a tiny sliver of the Indian economy have done well. Though largely driven by FPI, it also represents the fact that mutual funds are becoming major drivers of the markets. CMIE data on new investments shows the aggregate amounted to Rs 5.18 lakh crore—the lowest since FY05.
The GST revenue in major states Maharashtra and Karnataka has seen a steep drop. As per data released in June first week by Karnataka, the GST collection in April went down by 42 percent. The other major source of revenue, the sales tax also witnessed a dip of about 14 percent. This is true across all the major states of the country.
What this has also meant is that the fiscal deficit numbers are bound to be worrying. The budgeted fiscal deficit target of 6.8 percent for FY22 is most likely to be breached. With revenue uncertain and the increasing need to boost expenditure, with disinvestments looking gloomy (Prof. Arvind Panagariya has castigated the poor disinvestment performance and suggested the creation of a separate Ministry of Privatisation) the deficit is as per studies is estimated to go up to 7.5 percent-7.7 percent
FY22 growth estimates have been reduced by economists across the board to single digits—Moody’s to 9.3 percent, CARE Ratings to 8-8.9 percent, SBI Research to 7.9 percent.
A possible explanation for revenues in May doing as well as they did is the increasing compliance and the steady focus on sharing of data amongst agencies across the government and enforcement. Going forward this should continue.
So, while there is cause to celebrate, the prognosis going ahead looks gloomy. The government does have a challenge.
And in all the exuberance we should not lose sight of the fact that the GST revenue of May 2021 is the lowest revenue recorded since September 2020.
—Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal
Read his other columns here
(Edited by : Ajay Vaishnav)