Skip to main content

GST revenues: Growing uncertainty

By
GST revenues: Growing uncertainty
Sluggish GST revenues would mean higher government borrowing and consequently a worsening fiscal deficit position
A delayed implementation of the e-way bill will allow more preparation time to businesses already fed up with the government’s ad hoc decisions on the subject. On the other hand, it leaves one wondering how long it will take for GST (goods and services tax) revenue collections to finally stabilize.
Wary of declining GST revenue collections, the GST Council in December last year advanced e-way bill implementation from its originally scheduled date of 1 April to 1 February 2018. Trial runs that began on 15 January were fairly successful, say tax experts, who were hopeful that unlike GST returns filing, history would not repeat itself with the e-way bill website. But the e-way bill portal failed the litmus test and yet again, the roll-out had to be deferred.
Last week, the group of ministers overseeing GST-related developments recommended that e-way bill for interstate movement of goods should be put into practice from 1 April this year. A final decision on the date is likely at the 10 March meeting of the GST Council. There is still not much clarity on implementation of intra-state e-way bills and invoice matching system.
Revenue inflow from the new tax regime has been below expectations so far. Official data for GST collection for the month of January has not yet been announced.As the accompanying chart shows, there is no clear trend in GST revenue collections, which was more or less expected given the teething troubles.
But the worry is that despite government’s efforts to plug tax leakages and boost compliance, it is hard to predict if collections will start stabilizing next fiscal year onward.
“We reinstate our view that the FY2019BE (budgeted estimates) GST assumptions are on the higher side. While we do not rule out compliance-led upside, it is unlikely to feed in from the start of the year. This will complicate the budget arithmetic. July-November data indicates (on cash accounting basis) that the monthly run-rate is around Rs940 billion and FY2019E run-rate is likely to be Rs1.1 trillion, implying a growth rate of around 17.4%. This target could be difficult to achieve if compliance does not pick up from the start of FY2019,” said a Kotak Institutional Equities report dated 21 February.
If GST revenues fail to see an adequate pickup in FY19, it could spell doom for the markets. Sluggish GST revenues would mean higher government borrowing and consequently, a worsening fiscal deficit position. This, along with elevated inflation, is a perfect recipe to spook the bond market and push 10-year bond yields higher. In a domino effect, Indian stock markets could see a steep correction.
Equity analysts have been reiterating downside risks emanating from deteriorating macros due to subdued GST revenues. The fate of India’s pricey stock market valuations now depends a lot more on macroeconomic conditions than the much-awaited corporate earnings revival.


The Mint, New Delhi, 27th February 2018

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

By
  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...
Post a Comment
Read more