The government must stimulate demand while targeting to boost tax revenue to cover shortfalls
By Rahul Renavikar
The upcoming Budget will be an unprecedented one, as stated by the finance minister. Never has there been such a situation where tax collections are struggling to keep up with the budgeted number, and the demand for goods and services is sluggish. There are early signs of economic recovery such as record GST collections, increase in imports, etc, but the larger question is the sustainability of the increase in demand.
GST collections have been robust for the past three months and have crossed the Rs 1 lakh crore mark each month. Persistent efforts by the authorities have unearthed GST-related frauds, which has acted as a deterrent and has resulted in higher collections. It is expected that, with specific inputs from data analytics, the government will go after fraud more comprehensively.
The government maintaining the GST rates applicable to various goods and services despite a dip in the overall collections in the lockdown months is certainly commendable, but a further boost to consumption by rationalising the GST rate structure is needed, too. Time and again, trade & industry has called for rationalisation of the inverted duty structure in certain sectors such as textiles which can obviate the need for a refund of excess GST.
There has also been a demand for reducing the GST rates on certain products, such as two-wheelers. It remains to be seen if the FM (and the GST Council) will concede and an announcement to this effect will be made in the Budget.
The budgeted GST collection target for FY 21 will likely remain unmet, given the low collections during the lockdown period. A downward revision of GST collections in the revised estimates is expected.
However, the government must not come out with a new Covid-19 cess to cover the revenue loss and to provide for expenditure on administering the Covid-19 vaccine. Some news reports have pegged the cost of vaccinating all 130 crore Indian citizens at Rs 57,200 crore, at a discounted price of Rs 220 per dose (two doses per person). If this were to be true, the question is: Who will be footing this cost? With some political parties making pre-poll announcements of providing free Covid-19 vaccine to every citizen, it remains to be seen how the economics of such a large-scale programme is structured. Budget FY22 may provide answers to this question as well.
Government spending on developing infrastructure in the country, to stimulate demand and provide a cushion to sustain the blow of the Covid-19 pandemic, would require large funding, too. The National Infrastructure Pipeline (NIP) aims to invest Rs 111 lakh crore by 2025 in projects spanning sectors–energy, social and commercial infrastructure, communication, water and sanitation. The share of the Centre and the states in these projects would be 39% and 40%, respectively, while the private sector would contribute 21%.
The government has already listed almost 7,400 projects under the NIP. The idea is to give a boost to the vision of Atmanirbhar Bharat and make India a $5-trillion economy. Reducing import dependence and improving export performance is the target behind boosting the domestic manufacturing sector. One would expect further announcements in the Budget FY22 based on the initial feedback from the trade and industry on the Atmanirbhar Bharat-related announcements made post the pandemic.
Against this backdrop, Budget FY22 will be a tightrope walk for the FM. Trade & industry, the common man, all are waiting with bated breath and are expecting relief in some or the other form. At the same time, there is a lot of pressure to provide funds for ongoing infrastructure projects. All these years, the fiscal deficit was well contained, and this year, it is going to be a challenge to balance the revenue and the expenditure.
Managing Director, Acuris Advisors Pvt. Ltd. Views are personal