NEW DELHI :
The Union government is staring at a second straight year of revenue shortfalls as the resurgence of the virus and the subsequent lockdowns deliver a crushing blow to economic activity.
The decline in electronic permits raised for goods transportation in the first half of May and the moderating trend in goods and services tax (GST) receipts in April from imported items signal an impending decline in tax revenues, experts said. Sobering expectations of economic growth are also likely to hit June advance tax collections of the income tax department.
On Monday, the Reserve Bank of India (RBI) said in its bulletin that the biggest toll of the second covid wave was in terms of a demand shock—loss of mobility, lower discretionary spending and unemployment, besides inventory accumulation, though aggregate supply was less impacted.
Rating agencies have already slashed growth projections for FY22 following the second wave. However, given that the lockdowns are region-specific and less strict than last year’s, the economic impact in the June quarter could be much less. Moody’s Investors Service last week slashed its FY22 economic growth forecast for India from 13.7% estimated earlier to 9.3%, citing the second wave of the covid infections.
Early signals of the economic impact of the second wave include the decline in electronic permits generated by businesses for the transportation of goods. E-way bill generation contracted 17.5% in April to 58.7 million from the previous month. On average, over 1.2 million e-way bills were raised daily in the first fortnight of this month from 1.95 million in April, according to data available with the GSTN Network. However, the average e-way bills raised in May this year is more than the daily average of 849,756 seen a year ago. Growth in GST receipts from imports (IGST), too, declined in April after three straight months of growth. IGST receipts from imports stood at ₹29,599 crore in April, after touching ₹31,097 crore in March, a near 5% drop. Non-oil, non-gold imports fell by 3.4% in April to ₹2,861 crore from the previous month. Year-on-year comparisons could be misleading as the country was in a national lockdown early in FY21.
There is no doubt that the second wave of the pandemic has disrupted trade and businesses with statewide restrictions on the movement of non-essential goods and people, shipping delays, higher freight costs and limited capacity operations for domestic manufacturing units, said Saket Patawari, executive director–indirect tax, Nexdigm, a consultant. These factors could result in a gradual slowdown in the economy, and we could see moderate GST collections in the next two to three months, said Patawari.
Experts said the silver lining was that economic activity has not come to a halt as had happened in the initial part of the last fiscal. “Some sectors have been very badly hit such as services, hotel, travel and auto, and the drop in their business will bear on collections in the coming months unless there is a strong revival and mass vaccination takes off in a big way. Consumption will be impacted as individuals will remain cautious as fears of a third wave rise,” said Archit Gupta, founder and CEO of Cleartax, an online tax service provider.
Though there could be a drop in the GST collection of May and June, it would still continue to be around the ₹1 trillion mark, said Divakar Vijayasarathy, founder and managing partner of consultant DVS Advisors LLP.
On the direct tax side, advance tax receipts generally tend to be lower in the first quarter. This fiscal, it is expected to be better than last year’s, but it would still be lower than 2019, Vijayasarathy said.
Emails sent to the spokesperson of the finance ministry and revenue secretary remained unanswered till press time.
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