Entering its fifth year, India’s Goods and Services Tax (GST) system reported a blip in revenue collections for June , breaking an eight-month streak of over ₹1-lakh crore in tax receipts . GST revenues tanked to a tad less than ₹93,000 crore last month — the lowest in 10 months — after a record ₹1.41-lakh crore in April and a relatively tepid ₹1.02-lakh crore in May. Generally, the June revenue reflects transactions that occurred in May. With the second wave of the pandemic in full flourish and States enforcing rigorous restrictions on most activities in May, the numbers are not really surprising. However, as May GST compliance dates for smaller taxpayers were extended till early July, some of this revenue also reflects April’s sales. Thus, the actual GST income attributable to May’s economic activity would be lower than June’s gross GST kitty. This is also reflected in the generation of e-way bills, which fell by a sharp 30% in May compared to April, while the sequential decline in revenues was not as steep. With caseloads declining over June and restrictions being pulled back gradually, revenues should pick up next month with 5.5 crore e-way bills generated in June from 3.99 crore in May. Despite the slowdown in May-June, GST collections in the Q1 of 2021-22 have been healthier than pre-pandemic levels, confirming that this year’s restrictions driven by States have inflicted less economic costs than the national lockdown at a few hours’ notice, in 2020.
While the second wave setbacks have shaken up business and consumer sentiment, average monthly revenues of over ₹1-lakh crore — which Finance Minister Nirmala Sitharaman has termed the ‘new normal’ for GST — could perhaps sustain through the year, if there is no dramatic resurgence of the pandemic and vaccinations are ramped up as promised. This should give some fiscal breathing room for the Centre and States, but neither can afford to sit back. Structural corrections in the GST regime and the inclusion of petroleum and electricity may take longer, but there is enough that needs immediate attention. Industry has sought temporary rate cuts on some sectors to spur demand. It is plausible that a volume pick-up could make up for resultant revenue losses, just as an uptick in petrol consumption creates room for a revenue-neutral duty cut on fuels. The GST Council must be reconvened soon to take up such ideas to prod the economy’s rebound, apart from holding the promised special session to discuss all the brewing concerns related to States’ compensation. Delaying this will not only foster greater misgivings between the Centre and the States but also make it tough for States to plan their borrowings for the rest of the year. Clarity is also needed urgently on when the ₹1.58-lakh crore of back-to-back borrowings for States in lieu of compensation dues will begin. If the Centre plans to raise ₹5,000 crore a week, like it did last year, it will take roughly 32 weeks to complete such borrowings; so, any delay beyond early August may not be viable.
