Will low GST collection in June impact fiscal position at Centre, States?

Goods and Services Tax (GST) collections were at Rs 92,849 crore in June, below Rs1-lakh crore level for the first time in eight months. No matter if the revenue generated in June is still two per cent higher than the year-ago collection. It is despite the fact that the e-Way bills generated during June was at 5.5 crore, showing recovery of trade and business. To be precise, the GST revenue collection remained moderate at Rs1.02 lakh crore in May too.

While the GST collections did ease in June from the previous month, the pace of the moderation was muted as compared to the extent by which the GST e-Way bills had fallen in May on month-on-month basis due to the widening of state level restrictions caused by the second wave of Covid-19.

Now, let's have a look at the GST revenue collections in Q1, which is nearly twice as high as the numbers registered in the year-ago period, highlighting the narrower impact of the state-wise restrictions necessitated by the second wave of Covid-19 in India, as compared to the stringent nationwide lockdown last year. Again, the GST collections in Q1 are higher than the year-ago period. This will, as per Icra, buffer the revenue situation of the Centre and the states, which should support a ramping up of expenditure going ahead.

With reduction in caseload and easing of lockdowns, analysts expect that the revenues will see an increase again from July onwards.

For the 29 states, Ecowrap's estimates (based on average monthly collections till now) suggest that the total revenue including cess would be Rs 7.59 lakh crore (cess: Rs 1.03 lakh crore), while they have budgeted Rs 7.98 lakh crore, thus indicating a shortfall of Rs 0.40 lakh crore for the states. State GST could still surprise as there is a potential upside, notwithstanding the dip in June. Not to mention that the GST revenue is all set to cross Rs 6.30 lakh crore target as per projections in the current fiscal.

Indian states face a potential revenue shortfall of around Rs 1.05 lakh crore in the budget estimates of the current fiscal. However, if the states could carry out the reforms in power sector and the local bodies, a potential amount of Rs1.77 lakh crore could still be available to them. This implies that Indian states could still end the fiscal with an additional Rs72,000 crore in their kitty. Thus, fiscal position of Indian states is still much better than the overall consensus.

For Centre, the gains from GST would be still Rs 58,930 crore as per current trends. Again, the Centre could potentially add at least Rs 1.10 –1.32 lakh crore over the budgeted excise numbers from crude oil consumption. Thus, on an aggregate basis, the Centre does have a much better fiscal position currently with an estimated Rs 1.7 lakh crore tax revenue upside from budgeted numbers.