Uneven Recovery: At Rs 1.12 lakh crore, August GST mop-up down 4%; services sector, consumption remain weak

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September 02, 2021 4:00 AM

“The robust GST revenues are likely to continue in the coming months too,” the ministry of finance said in a statement.

GST collections from key manufacturing states such as Maharashtra, Tamil Nadu, Gujarat and Karnataka showed year-on-year growth of 25-35% in August.GST collections from key manufacturing states such as Maharashtra, Tamil Nadu, Gujarat and Karnataka showed year-on-year growth of 25-35% in August.

The gross goods and services tax (GST) collections came in at Rs 1.12 lakh crore in August (largely July transactions), up 30% on year but down 3.8% on month, signalling an ongoing economic recovery but suggesting that activities aren’t picking up evenly across sectors.

Continued weakness in the key services sector and subdued consumption are impacting the pace of recovery. Data released separately said the Nikkei manufacturing PMI dropped to 52.3 in August from 55.3 in the previous month; also, average daily e-way bill generation in the first 30 days of August was just 2% higher than the level in July.

India’s real gross domestic product (GDP) grew 20.1% in the June quarter from a year before, giving the illusion of sharp economic recovery, but it was largely driven by a deeply contracted (-24.4%) base. In absolute term, real GDP still trailed the pre-pandemic (June quarter in FY20) level by 9.2%. Manufacturing, construction, electricity and mining grew fast enough in the June quarter to offset the steep declines in the year-ago quarter, but key services sectors could not even completely reverse the decline. Private consumption, the biggest constituent of the economy, remained 12% below the FY20 level.

“The robust GST revenues are likely to continue in the coming months too,” the ministry of finance said in a statement.

While private consumption and investments are yet to show the resilient strength touted by government managers, the government’s tax revenues are showing strong growth. The Centre’s net tax receipts rose 2.6 times on year to Rs 5.29 lakh crore or 32.2% of FY22BE in the April-July period, compared with a mere 12.4% of the corresponding target reported in the year-ago period.

Thanks to steps taken to improve compliance and a shift of business away from the informal sector, GST also is yielding the revenue productivity its proponents ascribed to it. Even as the weighted average GST rate continues to be around 11% against the revenue neutral rate computed of a little over 15% and major items like auto fuels are still outside the net, the collections have shown an upswing for several months till the pandemic’s second wave hit businesses and quickly after taking a hit in June (Rs 92,849 crore).

“GST collections, after posting above Rs 1-lakh-crore mark for nine months in a row, dropped below Rs 1 lakh crore in June 2021 due to the second wave of Covid-19. With the easing out of Covid restrictions, GST collections for July and August 2021 have again crossed ?1 lakh crore, which clearly indicates that the economy is recovering at a fast pace,” the ministry said.

During August, the revenues from domestic transaction (including import of services) are 27% higher than the revenues from these sources during the same month last year. Even as compared with the August revenues in 2019-20 of ?98,202 crore, this is a growth of 14%.

Of the gross GST revenue collected in August 2021, central GST was Rs 20,522 crore, state GST Rs 26,605 crore, integrated GST Rs 56,247 crore (including Rs 26,884 crore collected on import of goods) and cess Rs 8,646 crore (including Rs 646 crore collected on import of goods).

GST collections from key manufacturing states such as Maharashtra, Tamil Nadu, Gujarat and Karnataka showed year-on-year growth of 25-35% in August.

The government has settled Rs 23,043 crore to CGST and Rs 19,139 crore to SGST from IGST as regular settlement. In addition, it has also settled Rs 24,000 crore as IGST ad-hoc settlement in the ratio of 50:50 between the Centre and States/UTs. The total revenue of the Centre and the states after regular and ad-hoc settlements in August is Rs 55,565 crore for CGST and Rs 57,744 crore for the SGST.

For the second year in a row, the Centre will borrow under a special, relatively low-cost mechanism in 2021-22 to bridge a yawning shortfall in the GST compensation cess pool and transfer the funds to states as back-to-back loans sans any big fiscal cost to states. The plan is to borrow under this window Rs 1.58 lakh crore in 2021-22.

While the amount borrowed under the RBI-enabled mechanism last year was Rs 1.1 lakh crore, the Centre recently acknowledged in Parliament that an amount of Rs 81,179 crore was yet to be released to the state governments towards fully compensating them for their GST revenue shortfall for the financial year 2020-21.

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