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Monday, June 14, 2021

Fuel for growth

Rise in indirect tax collection has improved central finances. Government must utilise fiscal space to support economy

By: Editorial |
Updated: June 3, 2021 7:49:41 am
Total tax collections, in fact, even exceeded the Centre’s own revised estimates presented in the Union budget in February by Rs 1.2 lakh crore.

In line with the trends in the broader economy, the fiscal position of the central government saw considerable improvement in the second half of the last financial year. As a consequence, despite the economy contracting in 2020-21, at the aggregate level, the Centre’s gross tax revenues touched Rs 20.2 lakh crore in 2020-21, up 0.7 per cent from 2019-20. Total tax collections, in fact, even exceeded the Centre’s own revised estimates presented in the Union budget in February by Rs 1.2 lakh crore. As a consequence of this higher than anticipated collection, the Centre has been able to restrict its fiscal deficit to 9.3 per cent of GDP, lower than its revised estimate of 9.5 per cent presented in the budget.

A closer look at the disaggregated fiscal data released by the Controller General of Accounts indicates that much of the spurt in gross tax collections was driven by indirect taxes — direct tax collections were only marginally higher than what was projected in the revised estimates. Indirect tax collections have surpassed direct tax collections, touching Rs 10.9 lakh crore (including GST compensation cess) in 2020-21, up 13 per cent over the previous year. But much of this spurt was driven by higher excise collections, which grew by a staggering 62 per cent (year-on-year) on the back of sharp hikes in petrol and diesel taxes, and customs duties, which grew by 23 per cent. On the expenditure side, the Centre has exceeded the revised allocations for food subsidy by a staggering Rs 1 lakh crore. The revised estimates had already dramatically raised the food subsidy allocation to Rs 4.22 lakh crore, up from the earlier budget estimate of Rs 1.15 lakh crore, on account of the Centre expecting to clear part of the outstanding dues of the Food Corporation of India. But the even higher expenditure now suggests that the remaining dues, which were expected to be cleared by the Centre in 2021-22, were cleared in 2020-21 itself. To the extent that this clearing up of the remaining FCI dues planned for this financial year has been preponed, it creates fiscal space for the Centre to support the economy this year.

The economic outlook has changed considerably since the Union budget was presented in February. While new cases are now much lower than the peaks observed in the second wave of the pandemic, analysts have already pared down their once ebullient growth forecasts. Large segments of households and companies are facing significant stress. The government should utilise whatever fiscal space it has to ramp up support to the economy.

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