With government’s tax revenues picking up, it should spend more to support the economy.
In line with trends in the broader economy, data on government finances, released by the Controller General of Accounts on Thursday, suggests that the recovery in central government finances is beginning to gather momentum. Four broad trends emerge. First, the Centre’s gross tax collections rose for the second straight month in November, with the pace of expansion actually accelerating. Second, while the collections were driven by indirect taxes, the uptick was more broad-based, with personal income tax collections also witnessing healthy growth. Third, the improvement in tax collections is in stark contrast to the continuing sluggishness of the Centre’s proceeds from disinvestment. Fourth, with greater revenue visibility, government spending picked up pace in November, imparting a positive impulse to the economy.
At the aggregate level, the Centre’s gross tax collections grew by a healthy 23 per cent in November, up from 16.9 per cent in October. Much of this rise was driven by indirect taxes which grew by a healthy 27.2 per cent in November, up from 23.6 per cent in the previous month. GST collections have now touched an all-time high in December. Under direct taxes, while personal income taxes continue to show healthy growth, corporate tax collections remain subdued. The latter, though, are likely to witness an uptick once the base effect kicks in in the coming months. However, despite this uptick, gross tax revenue at the end of November remained Rs 1.48 lakh crore below last year’s level. Further, collections from disinvestment continue to remain a matter of concern — as against a budgeted target of Rs 2.1 lakh crore, proceeds from disinvestment proceeds have so far added up to a mere Rs 13,843 crore. While the disinvestment process of entities like Air India and BPCL appears to be gaining traction, it is unlikely that the stake sales will be completed by the end of the current financial year, implying a huge shortfall against budgeted expectations.
Greater revenue visibility has helped impart a push to the Centre’s spending. Spending was up 48 per cent in November, with both revenue (excluding interest payments) and capital spending witnessing a massive increase, reversing the curtailment of the previous months. In fact, so far in the third quarter (October-November), central government spending is up 22.4 per cent, after contracting by 15.6 per cent in the second quarter, imparting an expansionary impulse to the economy. However, it needs to be pointed out that cumulative government spending over the April-November period has grown by a mere 4.7 per cent, notwithstanding the announcements of various support measures by the government. In fact, actual spending is significantly lower than the 12.7 per cent growth assumed in the budget. Even meeting the budgeted expenditure levels now translates to a 30 per cent increase in spending in the last four months of the financial year, providing a much-needed fillip to the economy.
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