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Analysis | After Q1, Centre’s revenue position looks comfortable; divestment concerns remain

The first quarter has been relatively encouraging on the tax and non-tax revenue front, and the Centre’s fiscal position is comfortable for now, even with additional expenditure. However, the government needs to pick up the pace on privatisation

July 27, 2021 / 09:37 AM IST

The Centre garnered net direct taxes of Rs 2.47 lakh crore in the first quarter of the current financial year, more than doubling from Rs 1.18 lakh crore a year earlier, Minister of State for Finance Pankaj Chaudhary informed the Lok Sabha.

For April-June FY22, net indirect tax collection was Rs 3.11 lakh crore, compared with Rs 1.83 lakh crore, a jump of 70 percent, Chaudhary said on July 26.

The figures show that the April-June quarter, which was hit by a brutal second wave of the COVID-19 pandemic, did not impact economic activity as much as the first quarter of last year, when the entire country was under lockdown.

As Chief Economic Advisor Krishnamurthy Subramanian told Moneycontrol in an earlier interview, in the past one year the Centre and the states have learnt to manage localised lockdowns better, allow inter-state trade to continue and keep most factories and workplaces open. This is expected to be followed if a third wave hits India.

Although things are looking up for the Centre on the revenue front, some concerns remain, especially on disinvestment.

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Tax Revenue

The break-up of direct and indirect taxes into income tax, corporate tax, goods and service tax and other components is available only for April and May. Data for the quarter will be released by the end of this month.

There was an indication of the break-up of direct taxes last week, when Chaudhary said the Centre had collected about Rs 94,181 crore in revenue through excise duties on petrol and diesel in April-June.

For April and May combined, corporate tax collections shot up by 155 percent year on year, while income tax receipts went up 111 percent. The Centre’s share of GST more than doubled in absolute terms.

Gross GST collections for April to June (before paying states their share of integrated GST, state GST, compensation and devolution) perfectly encapsulate the revenue situation for the Centre and the states in the first quarter.

While the highest-ever monthly GST collection of Rs 1.41 lakh crore was recorded in April, the number slipped below Rs 1 lakh crore in June for the first time in nine months, coming in at Rs 92,849 crore. So the second wave had an impact, which will be fully revealed when fiscal deficit data for April-June comes out.

Non-tax Revenue

A bumper here for the government, thanks to the Reserve Bank of India. The central bank transferred Rs 99,122 crore as surplus to the government, which will come as a welcome boost to the Centre’s finances.

As per the 2021-22 budget, the estimate for revenue from dividends by the RBI, state-owned banks and financial institutions stands at Rs 53,510.6 crore. The surplus paid by the RBI alone surpasses the target by Rs 45,611 crore.

Provided all other budget assumptions regarding revenue and expenditure remain the same, just the additional Rs 45,611 crore in revenue will reduce the fiscal deficit as a percentage of nominal gross domestic product (GDP) to 6.56 per cent for 2021-22, compared with a budgeted target of 6.8 per cent, our calculations show.

On top of this, the Supreme Court’s recent decision to dismiss the plea by telecom companies to recalculate their adjusted gross revenue dues owed to the Centre will also be welcomed in the Finance Ministry.

For the year, the budgeted estimate from telecom revenue stands at Rs 53,987 crore, compared with the 2020-21 revised estimate of Rs 33,737 crore, which itself had been lowered from Rs 1.33 lakh crore as the Centre had expected AGR dues to be paid in one go in the previous financial year.

Divestment

This is where the real concerns emerge. The pandemic put paid to an ambitious divestment plan last year. Against a target of Rs 2.1 lakh crore, the Department of Investment and Public Asset Management garnered only Rs 32,000 crore. For 2021-22, the target is Rs 1.75 lakh crore.

The Centre is confident that the divestment target for this financial year will be met through the privatisation of Air India, Bharat Petroleum, Shipping Corporation of India, Container Corporation of India, Pawan Hans, BEML, Neelachal Ispat Nigam Ltd. and IDBI Bank, as well as the listing of Life Insurance Corporation of India, which is expected to be the country’s largest initial public offering.

Officials said that given delays since last year, a lot of the preparatory work has already been completed.

“Last year and this year, we have already done a lot of work towards fructifying these plans. In many cases, the transaction and legal advisors have been appointed or are in the process of being appointed. We are confident that the target of Rs 1.75 lakh crore will be met,” an official said.

Earlier this month, the Centre issued requests for proposals for the appointment of the book-running lead managers, legal advisors, share transfer agents and advertising agents for the planned LIC share sale. The size of the IPO is expected to be larger than ever before in the Indian markets.
Arup Roychoudhury

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