The post-demonetisation slump in the retail market and its cascading impact on inter-State purchases are likely to take a toll on the State’s tax collection in December itself.
Tax collection in the State was largely propped up by purchases, mainly food, vegetables, fruits, and other consumables from the neighbouring southern States.
Contributing factors
Once the middle-class consumers were robbed of their purchasing capacity, sales in the local markets have taken a beating. The limits set in cash withdrawals coupled with currency shortage had already impacted retail trade and to a considerable extent services in the State.
Small and medium traders who had placed their procurement orders in early November would be receiving consignments from the States, but once the demand gradually dries up, they would eventually stop purchases and that would bring goods movement to a halt and eventually lead to a 30 per cent dip in tax collection, sources said.
No instant solution
According to Finance Department sources, the crisis would be evidenced in the tax collection from mid-December and its intensity would increase from January 2017 onwards.
Neither the Centre nor the Reserve Bank of India has come out with an instant solution to so far to effectively deal with the present crisis and address the currency shortage. The impact would become more evident in the coming days, sources said.
Tax personnel refuse to buy the argument that a surge in gold sales would help to make good the fall in tax returns from other sectors. Bringing such major transactions within the ambit of the tax network would not be an easy task and it may not help to compensate the loss, sources said.
The purchases by public sector undertakings such as Kerala State Road Transport Corporation, Kerala Water Authority, and Kerala State Electricity Board too are unlikely to add to the inflow into the State exchequer. Most of the agencies are incurring heavy loss and are gasping for survival and hence could not be depended on for even token support in the current context, sources said.
Fall in production
The gravity of the situation would become more evident on computing the steep fall in production and raw material purchases anticipated in different sectors. A clear picture is expected to emerge within a week, sources said.
