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The GST collection in December was Rs 1.15 lakh crore, the highest monthly inflow since its inception over three years ago. The December collection was 12% higher than the corresponding period of the previous year and it was the third consecutive month of collections in excess of Rs 1 lakh crore. This is a cause for cheer as GST collections are an important economic indicator. The government has attributed the performance to improved compliance and a rebound in economic activity.
GST collection as a proxy for a rebound in economic activity is of particular importance. It provides useful signals to both policy makers and the private sector. The key issue here is how the overall economic picture looks when GST collection is juxtaposed with other indicators. The overall picture suggests that the economy is not yet back to normal. The December data reflects November transactions. In other words, it is the culmination of festive season demand, which was partially insulated from restrictions on mobility on account of the surge in e-commerce. In the month ended mid-November, e-commerce platforms grossed Rs 58,000 crore, a 65% growth. This helped GST collections.
Will this trend hold? The answer is unclear as other indicators are not so encouraging. The core industries index shrank by 2.6% in November. Contraction in sectors such as steel and cement suggests that firms remain pessimistic. Moreover, financial conditions haven’t been more benign in years, with interest rates everywhere trending down. Yet, even as financial savings increase, banks remain risk averse. A lot of incremental deposits have found their way into government securities. The mixed picture suggests that it’s premature to believe a durable rebound is in place. The forthcoming Union Budget needs to factor that in.
This piece appeared as an editorial opinion in the print edition of The Times of India.