Turbulence feared ahead?

High GST Collections

By Shivaji Sarkar

The Indian economy is growing; GDP numbers are improving and so are tax numbers. Exports and a supposed wonder shows India as having better trade with the US than China.
The numbers are interesting — GDP growing at 4.1 per cent in the last quarter of 2021-22, corporate tax rising, though yet not to the level of 2010-11of 3.9 per cent and inflation giving a boost to GST collections at a record Rs 1.68 lakh crore in April surpassing the Rs 1.5 lakh crore mark for the first time since the introduction of the tax regime in 2017. It is Rs 26000 crore higher than the March collection of Rs 1.42 lakh crore.
The Finance Ministry attributes this to its tightened compliance and crackdown on GST evaders and fake bills, which the traders say is not possible. The GST collection may not represent the actual economic activity. A study by a group Ambit says that one of the key reasons for record collections was the surge in imports, which rose 54 per cent year-on-year in 2021-22 driven by higher commodity prices and which made integrated GST on imports the largest contributors of GST growth. On domestic inflation the report also says the high retail and wholesale prices pushed GST collections up. Nominal GDP growth and GST collections have a very strong co-relation. That means the surge in prices contributed majorly to higher GST collections.
That is a matter of concern and busts the myth that higher tax revenue is an indicator for a better economic activity. The flip side is that such high tax collections could also add to further inflation. It also impacts the purchasing power of the common man.
There is another aspect. India’s merchandise trade is growing at $418 billion exceeding the centre’s target by about 5 per cent and a 4 per cent growth over the previous year. It has grown with China and the United States. Of late, the Federation of Indian Exporters’ Organisation (FIEO) has said that India’s trade with the US surpasses that with China. The trade with the US touches $119.42 billion against $80.51 in 2020-21. India has trade surplus with the US of $32.8 billion.
The FIEO maintains that India-China bilateral trade was $115.42 billion. China counters that saying total trade is at $125 billion. It only shows that the trade level with the US and China is growing. India exports high value diamond, precious stones along with IT services to the US. The major items of import from China are computer hardware, electronic components, organic chemicals and drug intermediates.
There are problems with farm product exports. India tea exports decline 6.8 per cent to 195 million kg fetching Rs 5246 crore in 2021 despite a void by Sri Lanka. Tea Exporters Association Chairman A Kanoria says it has high pesticide content. Similarly, the Indian wheat is also rejected by Turkey for detection of Indian Rubella disease.
Apart from these it also should be noted that in a pre-globalised India many shocks were domestically absorbed by a robust parallel economy and through insulation of the system from the possible malignant impact. In the new world the neutral countries also are forced to pay for the sin of the others. India has not much exposure to Ukraine. It is neither a part of NATO. Its relations are good with the US and Russia. India is neither a provocateur for the war nor it wants sanctions. It suffers for sanctions on Russia and Iran. These are causing global inflation and India can do little but suffer.
The crude oil basket prices because of the war have risen to $115.9 per barrel on May 30 against an average of $97.2 in March. This may cause further price upset. Similarly tax numbers confirm profit-led recovery. Corporate tax collections have increased 55 per cent. It reflects that recovery is led by large groups at the cost of smaller competitors. It means smaller firms are at a loss.
That’s reality. But can India rethink of how the safety valves worked and the means to reintroduce them for the good of the poor people whose numbers have doubled during the pandemic and have to survive on doles — a drain on resources to keep the people survive in a tricky situation. Centralisation of the transactions through banks has added to the costs, which cash economy used to absorb. Can we move away from the banking transactions to save the banks? Yes, such dependence on banks makes it vulnerable to severe cost burden that is not the intention of the banking system.
The concern is genuine but the path is opaque. Interestingly enough a free gift like LPG cylinders to 80 million people has not helped them so much. The soaring prices to around Rs 1000 have made it prohibitively expensive to savour the benefits. It also is a lesson that the alternate being used by the people should not be replaced if the system cannot afford it. Multiple fuel, multiple modes of transport and parallels are necessary for the economy to remain functional.
It now extends to create a total dependence on electricity supposedly considered to be “clean”. Unfortunately, it shifts its polluting points centralised away from cities but does not reduce carbon footprint or pollution. It only shifts the location. Alternate energy has its problem of meeting the peak need. It is subject to nature’s vagaries. Solar is good but it does not work in a cover of continuous fog or cloud, hydel helps city homes have bright lights but it continues to devastate the countryside with man-made flash floods to maintain the level of comfort. It heaps miseries on people in remote areas by periodically devastating their economies. The cost on GDP is too high but is ignored as disaster reliefs cannot afford it.
To maintain high GDP growth India needs a strong domestic market and quality products for the export market. A combination of domestic and export market is a necessity to create the buffer for economic shocks. Still there are HSBC and Barclays who fear turbulence ahead because of high prices, falling overall profitability and weaker global economy. The Reserve Bank of India has started raising rates and may again revise growth projections as the US Fed may resort to tighter moves and OPEC decides July strategies. The journey is yet to be smooth. — INFA