In the month of November goods and services tax collection at Rs 80,808 crore the lowest since the new tax regime was introduced in July would complicate the budget calculations for the Narendra Modi government. The GST collections have been falling steadily over the months ever since the new tax regime was introduced in July. In October, the figure stood at Rs 83,346 crore, in September at Rs 92,150 crore, in August Rs 90,669 crore and in July Rs 94,063 crore.
The inconsistencies in revenue trends would also deter the government from making further experiments on the rate structure and process any time soon considering that it can further complicate matters. As of now, compliance continues to be an issue with merchants finding ways to trick the system. To be sure, the sharp decline in the November numbers are also due to the cut in rate on over 200 items that became effective from 15 November 2017.
The fall in revenue figures is not alarming. It is normal at a time when the GST is still in the initial phase of rollout. But the inconsistencies linked to the GST rates and compliance might have led to considerable distortions in the revenue trends, critical for policymakers to work out projections for the coming full year. This is one reason why Pronob Sen called the budget-making a guesswork.
The government, which is set to unveil its last full budget in February 2018, will find it extremely difficult to make its tax projections, said D K Joshi, chief economist at Crisil rating agency. “This budget is going to be extremely difficult for the government since there is a big change happening in the tax regime and there are several inconsistencies,” Joshi said. If revenue collections fall way short, Union finance minister Arun Jaitley will have a tough situation to deal with as he is under oath not to breach the fiscal deficit target (3.2 percent this fiscal year).
The economic scenario remains tricky despite a pick-up in GDP figures in the July-September quarter to 6.3 percent from 5.7 percent in the preceding quarter, spurred by a jump in manufacturing. Commodity prices, including that of crude oil, are inching up globally. To top it all, as mentioned earlier, the Narendra Modi government is set to launch its last full budget which means there will be political pressure to offer a handful of populist measures this time. Overall, it will be interesting to watch how Jaitley manages to fix the budget math and work out his revenue projections.
The monetary policy makers will be watching the budget closely, too. With revenue projections remaining tricky, the MPC (monetary policy committee) will be making a mistake by tinkering with rates without knowing which way the wind is blowing. Along with other factors, mainly the pick-up in the retail inflation, the risk factors loom large for the MPC to go for a rate cut in 2018. If inflation continues to inch up and other linked factors trigger risk, the MPC will be left with no option but to move on to a rate hike mode.
At this stage, more than a monetary boost, the improvement on the ground level economic situation can offer the much-needed push to the economy. This will also depend on how well the government plans to implement the Rs 9 lakh crore economic stimulus package announced recently.
As far as the GST collection trend is concerned, there is nothing alarming as of now. But, as said earlier, it is enough to upset Jaitley’s budget math.>