India is likely to exceed the targeted tax collections for the year ending March 2022 as higher levies on petroleum products and buoyant advance tax payments boost revenues, according to economists.
A faster-than-expected economic recovery, higher oil revenues and an absence of relief in tax payments lead to the surge in revenue collections, according to economists from Barclays Bank Plc to Australia & New Zealand Banking Group Ltd.. Junior Finance Minister Pankaj Chaudhary told lawmakers in parliament on July 26 that collections for the April-June quarter were 5.58 trillion rupees ($41.5 billion), an 86 percent jump from 3 trillion rupees in the same period a year earlier.
The rise in collections, particularly of direct taxes, shows that the economic drag from the second wave has not been like the one witnessed during the first one. Several parts of the country were locked down this summer after India struggled to curb the world’s fastest coronavirus surge.
“It is noteworthy that this collection was attained over the months which were impacted by the pandemic, which increases the possibility of India overshooting its estimated tax collection for FY2022,” said Rohini Sanyal, an economist at ISI Emerging Markets Group in Delhi. “It shows that economic activity didn’t stop completely, as it did during the nationwide lockdown the previous year,” she said.
However, some economists believe that the fiscal situation in Asia’s third-largest economy is not without worries as the government stepped up spending to mitigate the impact of a surge in infections. In June, the nation expanded the loan guarantee program to 4.5 trillion, from 3 trillion rupees, and pledged to scale up medical infrastructure and provide micro-financing.
Comments from economists:
- “The second wave of fiscal stimulus is likely to cost the government an additional 0.7% of GDP, and comes alongside the government’s likely uncompromising stance on capital spending and potential shortfall in disinvestment proceeds,” says Aurodeep Nandi, India Economist at Nomura.
- With no moratorium on tax payments and tariff on the fuel being higher than last year’s level, collections have surged, according to Rahul Bajoria, a senior economist at Barclays Bank Plc. He expects a “modest” fiscal slippage due to recently announced extra fiscal spending and sees the deficit at 7.5% of GDP, higher than the target of 6.8% set in the federal budget.
- The surge in tax collections might not impact borrowing plans but rather give the government “leeway” to respond to covid related spending, according to Sanjay Mathur, chief economist for Asean and India at Australia & New Zealand Banking Group.
Never miss a story! Stay connected and informed with Mint.
our App Now!!