Centre's revenues stuck in second gear

by Manasi Swamy

Central Government’s non-debt receipts mobilisation climbed to Rs.1.44 trillion in August 2020, its highest in the current fiscal thus far. But, there is little to rejoice. August has, more often than not, been the strongest month amongst the first five in terms of revenue generation. The Reserve Bank of India (RBI) traditionally transfers annual dividend to the government in August, which shores up its aggregate non-tax revenues, and in turn, total non-debt receipts.

Keeping with the trend, non-tax revenue receipts and total non-debt receipts increased sequentially in August this year. But, these were a steep 60.3 per cent and 34.9 per cent lower than their respective year-ago levels due to lower transfer of dividend by the RBI.

The RBI transferred Rs.571.3 billion dividend to the government in August 2020, which was much lower than the Rs.1.48 trillion transferred in the same month last year. The RBI had declared a dividend of Rs.526 trillion last year of which Rs.280 billion were transferred in March 2018 and balance Rs.246.4 billion were transferred in August 2019. Over and above, the RBI had made a one-time transfer of surplus reserves worth Rs.1.23 trillion to the government in August 2019.

Net tax revenues, the second and the single largest contributor to the government’s non-debt receipts, rose for the first time in the current fiscal, by 24 per cent y-o-y to Rs.817.1 billion in August. And, non-debt capital receipts, the third and the last component of the government’s non-debt receipts, stood at Rs.12 billion in August 2020, marking no significant change over their year-ago level. Non-debt capital receipts comprise of disinvestment proceeds and recovery of loans.

Coming back to tax revenues, gross tax collections of the Central Government, that is tax collections before parting with the states’ share in central taxes, stood at Rs.1.24 trillion in August 2020. These were 2.1 per cent higher than their year-ago level.

The gains mainly came from indirect taxes. The two main direct tax heads income tax and corporation tax reported contraction in collections to the tune of 27.9 per cent and 51.8 per cent, respectively, in August 2020. This is a reflection of the deep impact the Covid-19 shock has had on household incomes and business profits.

Among indirect taxes, excise duty collection led the show, marking a strong 53.4 per cent growth over the collections made in the year-ago month. The Centre collected Rs.325 billion excise duty in August 2020. It had hiked excise duty on petrol and diesel aggressively from Rs.22.98 per litre and Rs.18.83 per litre, respectively, on March 14, 2020 to Rs.32.98 per litre and Rs.31.83 per litre by May 6, 2020. Global crude oil prices crashed to an all-time low of USD 20.5 per barrel in April 2020, thus exercising a downward pressure on petrol and diesel prices. The Centre did not allow prices of the fuels to fall at the retail level. Instead, it hiked the excise duty which yielded a strong double-digit increase in excise collections in every single month starting June 2020. Cumulatively, excise duty collections rose y-o-y by a handsome 32.1 per cent to Rs.1 trillion during April-August 2020.

Goods and service tax collections (GST) excluding state GST too rose by 51.8 per cent to Rs.446 billion in August 2020, compared to the corresponding month of 2019. The robust growth, however, was largely a low-base effect. The collections in August 2019 were the third lowest monthly collections since the introduction of the GST. The lowest was April 2020 when the Covid-19 lockdown was at its strictest, and the second lowest was July 2018 when IGST, which is levied on imports and inter-state sales of goods and services, had slipped into a steep negative. In August 2019 too, there was an outflow of IGST from the Centre’s coffers to the tune of Rs.461 billion, which had pulled down its aggregate GST collections for the month to a meagre Rs.293.9 billion. The strong 51.8 per cent growth in GST collections in August 2020 came on top of this low base.

Nonetheless, GST collections did increase from an abysmally low Rs.167 billion in April to an average of Rs.403.7 billion during May-July 2020 and further to Rs.446 billion in August. This signifies a recovery from the Covid-19 lockdown shock of April 2020. However, the recovery is still incomplete as August 2020 collections at Rs.446 billion are substantially lower than the average monthly collection of Rs.501.2 billion attained in 2019-20.

Customs duty collections, albeit still lower than a year-ago, are showing sequential improvement as imports recover. Customs duty collections improved from Rs.39.3 billion in April to Rs.85.6 billion in August. The y-o-y fall too did alleviate from 70 per cent to 17 per cent, conveying that despite a recovery, the domestic demand for goods remains substantially weaker than a year-ago.

The Centre reduced transfer of states’ share in its revenues to Rs.419.7 billion per month since June 2020, after transferring Rs.460.4 billion in April and May each. The August transfers were 24.7 per cent lower than last year. This enhanced the growth in the Centre’s net tax receipts to 24 per cent despite a marginal 2.1 per cent increase in gross collections.

Cumulative net tax collections of the Centre during April-August 2020, at Rs.2.8 trillion, were 34.9 per cent lower than a year-ago. While tax collections have started showing an improvement, the recovery is too fragile to make up for the Rs.1.4 trillion loss of net tax revenues in the first four months of fiscal 202-21. Moreover, there are chances of big slippages in attainment of budgeted non-tax revenues and non-debt capital receipts with spectrum sale and big ticket disinvestments like Air India and BPCL reeling under uncertainty. This makes the Centre’s revised Rs.12 trillion market borrowings target vulnerable.

1. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001031010000000000&repnum=20646&frequency=M&colno=1
2. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001031010000000000&repnum=20671&frequency=M&colno=1
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.8 +1.3
Consumer Sentiments Index
Base September-December 2015
50.0 0.0
Consumer Expectations Index
Base September-December 2015
51.9 0.0
Current Economic Conditions Index
Base September-December 2015
47.1 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Dec 19 Mar 20 Jun 20 Sep 20
New projects 5.55 3.95 0.71 0.68
Completed projects 1.66 1.75 0.24 0.64
Stalled projects 0.61 0.77 0.11 0.08
Revived projects 0.83 0.42 0.68 0.34
Implementation stalled projects 0.13 9.78 0.09 0.03
Updated on: 21 Oct 2020 8:28PM
Quarterly Financials of Listed Companies
(% change) Dec 19 Mar 20 Jun 20 Sep 20
All listed Companies
 Income -1.7 -4.9 -27.9 4.1
 Expenses -2.2 -1.8 -28.3 1.2
 Net profit -10.8 -47.3 -38.4 9.0
 PAT margin (%) 5.1 2.4 5.5 17.5
 Count of Cos. 4,435 4,264 4,155 138
Non-financial Companies
 Income -5.5 -8.9 -38.0 3.6
 Expenses -6.4 -4.9 -38.2 -0.5
 Net profit -13.9 -48.2 -57.2 10.8
 PAT margin (%) 5.7 3.4 4.4 18.1
 Net fixed assets 13.3 31.9
 Current assets 3.0 4.2
 Current liabilities 4.9 -1.2
 Borrowings 14.7 14.8
 Reserves & surplus 2.1 18.6
 Count of Cos. 3,311 3,216 3,134 101
Numbers are net of P&E
Updated on: 21 Oct 2020 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.3 0.6
 Expenses 9.9 13.5 1.2
 Net profit -40.4 22.3 -19.0
 PAT margin (%) 2.0 2.4 4.4
 Assets 10.9 9.3 9.4
 Net worth 7.5 8.6 5.0
 RONW (%) 3.5 4.3 6.1
 Count of Cos. 27,922 27,039 4,480
Non-financial Companies
 Income 8.6 13.8 -2.8
 Expenses 8.8 14.0 -1.6
 Net profit -9.0 23.5 -28.4
 PAT margin (%) 2.7 3.2 4.7
 Net fixed assets 7.2 5.4 13.8
 Net worth 6.1 8.5 1.9
 RONW (%) 5.7 6.9 7.6
 Debt / Equity (times) 1.0 0.9 0.7
 Interest cover (times) 2.1 2.4 2.9
 Net working capital cycle (days) 77 70 56
 Count of Cos. 22,629 21,863 3,354
Numbers are net of P&E
Updated on: 20 Oct 2020 9:02AM