GST, GST collections, CGST, IGST, GST revenues, SUUTI shares, GDP growth, Credit Suisse
With GST collections by the central and state governments (CGST + IGST + Compensation Cess + State GST) coming in at just Rs 91,916 crore, or the lowest in the last 19 months, not only are the central government’s overall tax numbers in trouble—more so after the corporate tax rate cut—even the GST compensation to state governments could be affected. According to Credit Suisse, while there could be a Rs 210,000 crore overall shortfall in all central tax collections now, the fall in GST means state revenues from this tax will also come under pressure. In which case, as per the agreement with them, the Centre, which had promised to ensure their GST revenues grew at 14%, will have to give them more compensation. According to Credit Suisse, the compensation that was budgeted to be around Rs 109,000 crore in FY20 could rise to Rs 150,000 crore; based on April-August data from the Controller General of Accounts (CGA), the compensation cess collections are averaging around Rs 7,900 crore per month right now. In which case, the central government will have to dip into its own tax collections to compensate the states. While the Centre is keen to revise this pact with states—valid till FY22—the state governments are trying to ensure that it extends a similar guarantee for another five years after FY22.
West Bengal finance minister Amit Mitra has been arguing that if GST collections continue to fare as they are right now, state government collections will continue to be under pressure. The crux of the problem is that, with the government—the Centre and states—not able to bring in the invoice-matching feature that is key to raising compliance in the GST system, the required buoyancy in GST collections is far from what is required. GST collections by the central government (CGST + IGST+ Compensation Cess) in FY19 were Rs 582,000 crore, a figure that was short of the original target of Rs 743,000 crore; this was later revised down to Rs 643,000 crore. While the government had budgeted a growth of around 13% in FY20—a monthly run-rate of Rs 55,278 crore versus Rs 48,500 crore in FY19, the April-August FY20 run rate was just Rs 47,321 crore. And, as compared to the same period in FY19, there has been virtually no growth at all.
Faced with a big tax shortfall, the government will then have no option but to either raise the target from divestment of existing shares of PSUs—including the SUUTI shares it owns—as well as aggressive privatisation of these firms. While the budget has estimated receipts of Rs 105,000 crore under this head—as compared to Rs 80,000 crore in FY19—it is not clear that an amount larger than this can be raised if the stock markets don’t remain buoyant; also, if there are too many equity offerings, the appetite for them might reduce. The other option is to make aggressive cuts in expenditure. What is more likely is a combination of expenditure cuts and more divestment/privatisation, along with the usual rollover of certain expenditure on subsidies like those on food and an increase in the fiscal deficit; the likely slower nominal GDP growth, in any case, will add to the fiscal slippage.