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Lower GST mop-up to upset Indias fiscal math
October, 04th 2018

After the lower than expected Good and Services Tax (GST) collections in August over the previous month, analysts said lower collections will negatively impact India’s fiscal situation.

Investors are nervous about the lower-than-expected GST collections. The shortfall in GST collection will put pressure on government finances, according to global brokerage CLSA.

“We expect a 50 bps (basis points) shortfall in government revenue. The central government’s fiscal situation thus continued to deteriorate in August with fiscal deficit reaching 95 per cent of budgeted levels. This is now similar to last year’s trajectory, which eventually resulted in a 20 bps fiscal deficit slippage” CLSA said in a report.

GST collections for August were up 0.5 per cent over July and 1.5 per cent over August last year to Rs 94,400 crore, trending 2 per cent lower than average run-rate of Rs 96,300 crore per month so far this year.

During April-August, the government’s total tax revenue was up 9 per cent YoY against 18 per cent budgeted. Direct taxes were in line at 16 per cent growth but indirect taxes are weak at 4 per cent.

“Overall, we estimate that the central government needs a 53 per cent jump in its GST collections for the remainder of the fiscal year to meet its budgeted estimates, unlikely to happen” said CLSA.

By announcing that it will borrow less from the debt market, the government is signalling that its finances are under control and that it is committed to meet its fiscal deficit target, it said “Government is managing its weak fiscal, partly by borrowing off market via agencies such as the FCI (food subsidy), BMTC (housing for all), NHAI and railways. While the same is good for G-Sec yields near term, the resulting crowding out may already be hurting the private financial and corporate sector,” said CLSA.

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