Statsguru: What is the asking rate in second half to meet economic targets

The first half of the current financial year has wreaked havoc on the economy, and, subsequently, on the financial position of the government. 

The economy is expected to see a sharp contraction, according to Reserve Bank of India’s projection, and so will the tax revenues of the government. A look at what would be the asking rate in the second half gives an idea of what is possible — and what is not.

Going by the Budget estimates, the Centre will have to collect tax revenue worth Rs 11.8 trillion in the October-March period. That’s 2.6 times what was earned in the first half, April-September. If taxes depend on economic growth, non-tax revenues such as dividends from public companies and spectrum auction are relatively independent. But even these need to grow 150 per cent over the same period of the previous year to achieve the Budget target, shows chart 1. Divestment receipts have performed poorly, and they need to nearly quadruple from last year.

Coming to the five major sources of tax revenue, excise duties have been a boon for the government, courtesy heavy taxation on petrol and diesel. But on the other side, the asking rate for H2 FY21 for corporation tax is a whopping 3.5 times of what was earned in the first half. Compared with the H2 in FY20, corporation tax, income tax and the goods and services tax, all need to grow at least 70 per cent, shows chart 2.

The extent to which these targets are met depends on how fast the economy picks up, as the recovery to date is visible only in pockets of economic activity. The impact in H1 gives us an idea of how fast various sectors should grow to make good the economic loss.

Indicators of consumer demand show that only tractor sales are rising, but auto sales lag. Electricity consumption is nearing pre-Covid levels, but big-ticket consumption is still weak (chart 3). Also, while road traffic is back on track, port traffic and rail freight need to recoup at least 10 per cent in H2 FY21 to complete the recovery.

The stress in the manufacturing sector appears severe, especially as investment-related production of capital goods is at half the previous year’s levels. But corporate sales look stronger by comparison, with a 5.4 per cent fall in the September quarter (chart 4). Bank credit is on the growth curve, but how much of it is being invested remains unclear. Deposits grew faster than credit, showing risk aversion.

And house sales in major cities are still 65 per cent lower than the previous year. The faster the catching-up, the earlier the recovery.

 

* May to September; ** IIP, April – August; *** Growth in October 2020 over pre-Covid levels; **** April – October; ***** Airtel for July-September quarter; Source: ICRA, Ministry of Finance, Central Electricity Authority, National Statistical Office, Commerce Ministry, Federation of Automobile Dealers Associations, Business Standard reports, Indian Ports Association

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines. 
 

Source: BSE, NSE, SEBI, NSDL, Compiled by BS Research Bureau