Fiscal worries

by Mahesh Vyas

The centre’s tax collections for 2018-19 got off to a good start. Net tax collections of the central government in April 2018 at Rs.575 billion were 150 per cent higher than they were in April 2017.

Gross tax collections by the centre, excluding state GST, grew by 58.7 per cent but, the states’ share grew by a far more modest 15.8 per cent. As a result, the net tax collections of the centre show a handsome growth rate in April.

Corporate tax collections were up 24 per cent while income tax collections grew only 2.5 per cent. The robust increase in corporate taxes is unusual in this month.

Indirect taxes in April 2018 were 124 per cent higher than in April 2017. Custom duty collections were down 51 per cent in April 2018. Excise duties were refunded and there was no positive collection. But, these declines (or negative flows) were more than offset by the goods and service tax collections. This shift, of course, is a result of the indirect tax reform introduced earlier in the last fiscal year.

GST collections in April (excluding state GST) were Rs.607 billion. This is the highest collection in any month since the launch of GST, except in the first effective month of collection - August 2017.

The Rs.607 billion GST collection of April 2018 compares well with the ask of about Rs.620 billion per month for a budget estimate of Rs.7,439 billion for 2018-19.

The total GST collections (including state GST) were Rs.940 billion in April 2018. This turns out to be lower than the total GST collections in March (which was Rs.1,035 billion). According to several media reports attributed to government officials, the informal target is to reach a gross GST collection (including state GST) of Rs.1 trillion per month.

Many commentators have suggested that the April GST collection is very good because it is much better than the expected seasonal fall in collections during the month. However, such comfort is misplaced. Excise duty and service tax collections used to surge in March every year because of a rule that March payments had to be made by 31 March (unlike in other months when the payments were to be made in the following month). Correspondingly, there was a fall in April. But, there is no such March-rule in case of GST. As a result, April collections are not expected to fall anymore. Therefore, it is incorrect to say, for example, that April collections can be just 7 per cent of annual collections as they have been in the past. Now, they must be close to 8.3 per cent of the annual collections. April collections were a reasonable 8.2 per cent of the annual collections.

Implementation of the inter-state e-way bill system with effect from 1 April 2018 and the intra-state e-way bill from 15 April 2018 had contributed towards the healthy GST collections during the month. And, it may push up the collections even further in the coming months.

The number of GST filings has been rising steadily. 6.25 million returns were filed in April 2018 compared to 6 million in March and lesser in the earlier months. The steady increase in GST filings provides comfort that the introduction of GST is leading to enhanced tax compliance. But, compliance rate is low as the required tax payers is over 8.7 million.

Non-tax revenue receipts of the central government in April 2018 were nearly 9 per cent higher than they were in April 2017.

April 2018 wasn’t a very good month on the non-debt capital receipts front. Compared to a year ago, these receipts were down by 45 per cent. But, the bigger disappointment during the month was the government’s failure to attract any bidder for Air India. Failure to sell the airline could jeopardise the government’s non-debt capital receipts target for the year as disinvestments is a part of this.

The government had proposed to sell 76 per cent of the national carrier along with its subsidiary Air India Express and a 50 per cent stake in AISATS, a ground handling enterprise. This would be a significant portion of the total Rs.800 billion the government hopes to garner through disinvestments during 2018-19.

The government faces multiple challenges on the expenses side. In general, the pressure to spend could be higher in 2018-19 because this is an election year and the current government is very focussed on winning elections. But, besides this hypothetical and very general inference, there are other real economic reasons why expenses could shoot up.

First, higher crude oil prices in 2018-19 could lead to the government paying higher subsidies on kerosene and LPG and it could forego revenues by cutting excise duties on petrol and diesel to keep inflation from rising in response to higher crude prices. We estimate that this could lead to an additional expense of about Rs.300 billion.

This additional burden does not take into account the impact of a weakening rupee. A weaker rupee is the second factor that could raise government bills in 2018-19, by pushing up the crude oil subsidy bill and by raising the cost of servicing its external borrowing.

Third, interest costs are likely to rise because of the sharp increase in the yield on long-term government bonds.

While the government projected a GFD/GDP ratio of 3.5 per cent in 2018-19, we had projected this to be higher, at 3.7 per cent in our post-budget analysis. This had taken into consideration, the impact of higher yields and had projected a Rs.140 billion shortfall in the budgeted revenues from GST. Recent trends in GST collections indicate that there is no strong reason to believe in such a shortfall anymore. However, it had not taken into account the sharp increase in crude oil prices. There is also a worsening of NPAs of PSU banks that may warrant additional government capital infusion during the year. If crude oil prices average at USD 75 per barrel during the year and reversing our GST shortfall, ceteris paribus, the deficit ratio is expected to rise to 3.9 per cent.

Unemployment Rate
Per cent
6.2 -0.0
Consumer Sentiments Index
Base September-December 2015
102.0 +0.6
Consumer Expectations Index
Base September-December 2015
101.2 +0.5
Current Economic Conditions Index
Base September-December 2015
100.0 +0.5
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 17 Dec 17 Mar 18 Jun 18
New projects 1.31 1.51 3.41 2.32
Completed projects 1.26 1.16 1.57 0.91
Stalled projects 0.69 0.88 3.44 0.30
Revived projects 0.34 0.24 0.26 0.22
Implementation stalled projects 0.78 0.71 1.92 0.04
Updated on: 19 Aug 2018 8:20PM
Quarterly Financials of Listed Companies
(% change) Sep 17 Dec 17 Mar 18 Jun 18
All listed Companies
 Income 7.9 12.0 9.7 16.3
 Expenses 9.0 13.0 16.2 19.4
 Net profit -18.0 -14.3 -80.1 3.7
 PAT margin (%) 5.5 4.8 1.2 5.5
 Count of Cos. 4,508 4,503 4,360 4,026
Non-financial Companies
 Income 8.2 13.3 11.1 18.5
 Expenses 8.2 12.4 11.7 20.3
 Net profit -6.0 13.2 1.8 33.5
 PAT margin (%) 6.2 6.4 6.6 7.2
 Net fixed assets 9.2 11.8
 Current assets 2.9 7.2
 Current liabilities 11.0 10.4
 Borrowings 3.4 1.9
 Reserves & surplus 7.9 7.2
 Count of Cos. 3,464 3,471 3,372 3,173
Numbers are net of P&E
Updated on: 19 Aug 2018 8:20PM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.6 1.9 6.0 10.3
 Expenses 5.7 2.0 6.0 12.3
 Net profit 0.0 -9.7 25.0 -29.9
 PAT margin (%) 3.0 2.8 3.4 4.4
 Assets 9.5 10.2 7.6 13.2
 Net worth 8.5 11.3 7.9 12.8
 RONW (%) 5.8 4.9 5.8 6.8
 Count of Cos. 26,186 24,491 22,087 922
Non-financial Companies
 Income 4.9 1.1 5.8 9.7
 Expenses 5.1 0.5 6.1 8.6
 Net profit -9.4 19.9 19.8 6.0
 PAT margin (%) 2.0 2.4 2.9 7.7
 Net fixed assets 13.3 22.1 7.3 23.5
 Net worth 7.0 12.0 7.0 10.5
 RONW (%) 4.6 5.1 5.9 13.8
 Debt / Equity (times) 1.1 1.1 1.0 0.4
 Interest cover (times) 1.9 1.9 2.1 6.5
 Net working capital cycle (days) 66 65 62 28
 Count of Cos. 21,360 20,505 18,408 712
Numbers are net of P&E
Updated on: 19 Aug 2018 12:26PM