GST inflows in December augur well, but the economy is still in a flux.
For a fiscally strapped government, scrambling to arrest the economy’s recessionary decline, the GST collections in the last month of 2020, of over ₹1.15 lakh crore, come as welcome tidings. With revenue receipts at just 40% of the Budget target in the first eight months of 2020-21, the government would hope that December’s indirect tax inflow, the highest since the indirect tax regime’s launch in July 2017, shall sustain over the last quarter of the year. GST inflows have now stayed above ₹1-lakh crore for three months in a row, averaging ₹1.05-lakh crore through October and November, before the December spike. After two quarters of a sharp shrinkage in the economy following the COVID-19 lockdown last March, this also infuses hope that the third quarter might see India’s headline growth rate resurfacing from subterranean depths. The Finance Ministry has stressed that the 12% year-on-year buoyancy in GST’s December kitty, the highest growth rate recorded in 21 months, reflects ‘rapid post-pandemic economic recovery’, bolstered by improvements in compliance following a recent crackdown on indirect tax evaders. It is important to discern how much of an impact stricter oversight and better compliance had on these revenues so as to distil what came from normal economic activity in November, which is what December revenues largely account for. Moreover, November included the fag end of India’s festive season so the numbers may moderate in the months to come, even though growth rates may stay high due to a low base effect as it gets close to a year after the lockdown.
But new GST rules, effective January 1, are expected to tighten GST compliance further so that part of the revenue booster should persist. Second, the GST on imports grew a robust 27% in November, even though overall merchandise imports contracted 13.33%. With December recording a 7.6% surge in imports, growing for the first time since February 2020, GST on imports should rise further in the coming month. Similarly, car sales surged for the fifth month in a row in December, which should not only boost the GST receipts in January but also bring in precious compensation cess. Whatever trajectory revenues take from here, pain points persist and some key niggling issues seem to be aggravating further. Core sectors recorded yet another contraction in November, with cement and steel slipping back after a minor uptick. New investments in the October to December 2020 quarter declined a whopping 88% from a year ago, as per the Centre for Monitoring Indian Economy (CMIE). Employment levels declined significantly in October, followed by almost 35 lakh job losses in November and continue to deteriorate through December, CMIE reckons. The Centre needs to address some of these challenges — in the coming Union Budget or outside — to recover lost ground faster.