Indirect tax mop-up spurt signals recovery: CEA Arvind Subramanian

By: | Updated: June 12, 2015 12:50 AM

The jump in indirect tax collections in the first two months of the year, even after stripping down additional levies imposed this year.

The jump in indirect tax collections in the first two months of the year, even after stripping down additional levies imposed this year, indicate that an “underlying” economic recovery was continuing, chief economic adviser Arvind Subramanian said on Thursday.

Indirect tax revenue grew a healthy 39% in April-May this year, partly helped by a favourable base. The government had raised median excise duty from 12.36% to 12.5% in the last budget and a hike in service tax from 12.36% to 14% came into effect on June 1.


“If you strip these (excise rate hike and withdrawal of excise benefits to the auto sector and increase in clean energy cess to R100-200/tonne on coal), the indirect taxes grew 12.6% in April-May and in May alone it was 16.9%,” Subramanian said. “So, from April to May, the growth in revenue has picked up,” he said, adding that what was common to many indicators (such as a pick up in capital goods output, a decline in the rate of stalling of projects, a pick-up in manufacturing activity, a slight improvement in investment rate, etc) is that they seemed to reflect a pick-up. He, however, cautioned that it was too early to state whether the change was robust or what was seen is still an early recovery. He also added that an adverse base effect might kick in from June-July as far as indirect taxes are concerned.

Industrial production growth slowed to a five-month low of 2.1% in March while core sector growth hit an 18-month low of 0.4% in April. While the IIP rose 2.8% in FY15, the steepest since FY12, it came off a favourable base (the index had contracted 0.1% in FY14). The 3.5% expansion of the core industries in FY15, too, was the lowest since the crisis year of FY09.

Apart from the recent months’ contraction in exports (partly caused by the fall in global commodity prices), a still-tepid investment climate, contraction in the net sales of two-wheelers and tractors and weak growth in other auto segments, decelerated growth of non-food credit of commercial banks (at 8.6%)

and a below-normal monsoon season are the challenges before the government.

The government is also making an attempt, despite its fiscal stress, to step up public spending and spur demand.

The CSO put the Q4 real GDP growth at an impressive 7.5% and the expansion in Q3 at 6.6%, down sharply from 7.5% estimated just two months ago. Its explanation for the dichotomy between other data- rather weak industrial production, corporate results and slack credit growth — and the high rate GDP expansion include the efficient and wider capturing of value addition by means other than production in the new series. Also, the reduced subsidy outgo and higher tax collections in the final months of last year helped the gross value added in manufacturing and services look stronger than otherwise read.

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