CEA advises against reading 'too much' into tax collection rise

Chief Economic Advisor Arvind Subramanian on Thursday advised caution despite 39 per cent increase in indirect tax collection in the first two months of the financial year.

He said though the rise was a sign of economic recovery, it would be best to not read too much into it.

The collection figures reflect in part the effect of the additional measures taken by the government such as increase in excise duty on diesel and petrol, rise in clean energy cess and withdrawal of exemptions from excise duty on motor vehicles and consumer durables.

After taking out the impact of these additional measures, indirect tax collections showed an increase of 12.6 per cent for April-May this financial year as compared with the corresponding period in the previous year.

Subramanian said: "...one shouldn't read too much into all these; should be careful, appropriately cautious because these are only two months. Also, that to some extent these numbers are going to be high because of base effect, corresponding collections last year were somewhat down. That, too, is a caveat [and] needs to be noted."

He said the base effect will kick in from about June-July. "What these numbers tell you is that underlying nominal gross domestic product (GDP) growth is not doing bad. There is the momentum of the economy picking up. Whether that is robust, surging or merely recovering, that's going to take a lot more analysis. But the indirect tax revenue number is real money and based on real underlying economic activity. It is one among a number of indicators."

His comments came a day after Finance Minister Arun Jaitley revealed the indirect tax figures.