Experts wary about sustainability of Rs one trillion GST collections

They believe the October mop-up may have resulted from pent-up demand, are sceptical about the post festive season scenario

The Goods and services tax (GST) collection crossed Rs 1 trillion for the first time in eight months this October. The crucial issue now is whether this will sustain, as the October collections were largely due to unlocking from September onwards.

Collection in any month is for the business done the previous month.

At Rs 1.05 trillion, the mop up was not only 10 per cent higher than Rs 95,379 crore a year ago but almost equal to that in February, which was before the lockdown, when the pandemic hadn’t struck.

The government claimed that the year-on-year growth and the 4 per cent rise in GST collections over the previous month showed signs of economic recovery and of revenues. GST collections stood at Rs 95,840 crore in September.

While many say the October number came from pent-up demand, finance secretary Ajay Bhushan Pandey doesn't fully agree.

He says, "In September, it was four per cent higher year-on-year. If there was pent-up demand, it should have come down in October. But, October collections were ten per cent higher on a yearly basis."

He says there have been signs of recovery over the past few months on various parameters, including electricity consumption, purchasing managers’ index, and GST collections.

He rolls out statistics to buttress his point. "E-way bill generation in October was 21 per cent higher than last year’s. Besides, 2.9-million e-invoices were generated till October 30. All these figures stand testimony to the strength of the economy. Pent-up demand or past demand carry-over will be a small component, but the economy is touching pre-Covid levels. It is entering growth territory on a month-on-month basis," he points out.

However, experts warn of over-interpreting the numbers and said their sustainability needed to be watched beyond November.

Aditi Nayar, principal economist at Icra, says that to a large extent, the uptick in the GST collections in the recent months appears to have benefitted from pent-up demand, building up of inventories prior to the festive season, as well as the recent introduction of e-invoicing.

"While demand for many items seems to have surged in the recent period, it is unlikely to sustain at this pace after the festive season is over. We remain circumspect about the durability of the spikes being seen in various sectors, and therefore of the healthy headline GST collection figures, after November 2020," she says.

"We will revisit this projection in early December 2020, after the data for Q2 of FY'21 is released by the NSO (National Statistical Office). By then, there will be greater clarity on the likelihood of the endurance of the festive season uptick, as well as the pace of new covid-19 infections domestically and in major trading partners during the colder months," she defends ICRA's projections.

In fact, the department of economic affairs in its monthly bulletin for October cautioned that the second wave of Covid-19 could derail the economic recovery and warned against the breach of social distancing. It however, said the economy has been recovering at a fast pace and would likely to reach pre-Covid  levels by the end of the current fiscal year.

Cautioning about a fresh wave of the pandemic, it said: “A steady contraction of active Covid cases and a low case fatality rate have instilled measured optimism in India that the worst is behind us. But a second wave of the pandemic in advanced nations is a grim reminder of how reality hits back when caution is compromised.”

It, however, said the overall consumption is expected to see a further uptick in the coming months, enhancing prospects of a faster economic normalisation.

M S Mani, partner at Deloitte India, says the next two months are expected to be robust from a GST collections standpoint due to the pent up demand and the festive season.

"However, the collections thereafter would depend on the pace of revival of economic activities, business conditions, impact of the next phase of e-invoicing roll out etc.," he sounds words of caution.

Archit Gupta, CEO of Cleartax, says the GST collection seems to be improving. "This will continue for some time as the festive season progresses," he says.

Gupta says there are benefits for businesses from e-invoicing implementation and it is time to start gearing up for this change and to understand what all changes are required to be made.

The government has made e-invoicing mandatory for firms having annual turnover of at least Rs 500 crore. It will be made mandatory for those having annual turnover of at least Rs 100 crore from January one, 2021 and for all firms from April one of that year. 

Table: GST collections in Rs crore

Month	2019	2020	Growth in %
January	1,02,503	1,10,818	8.11
February	97,247	1,05,366	8.35
March	1,06,577	97,597	-8.42
April	1,13,865	32,172	-71.74
May	1,00,289	62,151	-38.03
June	99,939	90,917	-9,03
July	1,02,083	87,422	-14.36
August	98,202	86,449	-11.97
September	91,916	95,480	3.88
October	95,379	1,05,155	10.25

Source: finance ministry