GST revenues: Growing uncertainty

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