Economy challenges: boost growth and GST revenues, keep deficit in check | Explained News,The Indian Express

GDP growth for the second quarter was at a six-year low of 4.5%. The Finance Minister has said earlier that the economy may have bottomed out; several analysts and experts, however, feel the worst may not be over yet.

Several announcements made by the government after the Budget in July 2019, aimed at quelling anxiety around slowing economic growth, falling private sector investment, and decline of consumption, have so far failed to achieve the desired results. As India Inc., bankers, economists, and consumers wait for a next round of measures in the Budget next month, they will be watching how the government balances measures to boost growth with its stated objective of sticking to the fiscal deficit target, improves GST collections, and keeps rising inflation under check.

Where we stand now

GDP growth for the second quarter was at a six-year low of 4.5%. The Finance Minister has said earlier that the economy may have bottomed out; several analysts and experts, however, feel the worst may not be over yet. Don’t miss from Explained | Hundred challenge to T20, borderline sports coming through the Rings

Passenger car sales, which witnessed a marginal uptick of 0.3% in the festival month of October after sliding continuously over the previous 10 months, went back into decline mode in November. In the eight months of this financial year, passenger car sales have declined 18%, sales of medium and heavy commercial vehicles by 37%, and two wheelers by 15.7%. This indicates a slowdown in economic activity in both urban and rural areas, and in industrial demand.

Between April and October, gross bank credit growth expanded by just 0.7%; within that, the credit outstanding for the industrial and services sectors contracted 3.4% and 2.6% respectively. The personal loan segment expanded by only 7.6%.

Power demand has been falling — as of November 11, of the total 262 coal, lignite, and nuclear units, 133 were shut due to lack of demand. As of November 7, peak demand met was 1,88,072 MW, a little less than half the total installed generation capacity of 3,63,370 MW.

Explained | In 2020: Expect Better phones, greater control over data, but no big 5G boom

Both direct and indirect tax collections have slowed due to the overall economic slowdown, and it will be a challenge for the government to meet tax receipt targets set in the Budget. GST revenue collections have been slowing over the past few months. Barring November, when collections picked up due to festival sales, GST revenue has contracted for the previous two months, leading to delayed compensation payments to states.

The central GST collection during April-November has fallen nearly 40% short of the Budget estimate — Rs 3,28,365 crore against the Budget estimate of Rs 5,26,000 crore — as per data presented to Parliament. Direct tax collections have fared no better, with only 41.7% or Rs 5.56 lakh crore of the target of Rs 13.35 lakh crore, collected during the first eight months of the financial year, government data show.

What the government can do

There have been calls for the government to lead the revival through aggressive spending. The question is whether the government has the wherewithal to do so.

After the cut in corporate tax rates, there are expectations now of a reduction in income-tax rates, or adjustment of tax slabs in the Budget to stimulate demand. However, the government’s fiscal health does not provide it with much leeway for an aggressive expenditure push. The fiscal space is tight, especially after the sharp cut in corporate tax rates, which is estimated to cost the exchequer Rs 1.45 lakh crore.

Explained | Looking ahead in 2020: Pitched battle ahead for states, ideas, institutions

Privatisation of state-owned companies such as BPCL, Shipping Corporation of India and Container Corporation of India Ltd is being lined up to generate resources to cover the expected shortfall in tax revenues. A rollover of subsidies this year could add close to 0.3% of GDP to the fiscal space. Even so, analysts expect the fiscal deficit to be around 3.7-3.9 per cent of GDP, against the target of 3.3% by March-end 2020.

With the Reserve Bank of India maintaining a pause in its rate reduction cycle during the latest review of monetary policy, the government might wait for the corporate tax cuts to drive investments in the economy.

One way for the government to give a spending push will be to postpone the fiscal consolidation plan. Industry executives argue that if reduction is put on hold for a couple of years, the government would have extra resources to push spending. As the economy picks up pace later, it can revert to the targeted reduction in deficit.

via Economy challenges: boost growth and GST revenues, keep deficit in check | Explained News,The Indian Express

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s