GST mop-up dips but stays above Rs 1 trillion for the second month

August number contrasts sharp pick-up seen in daily e-way bill generation

Goods and services tax (GST) collection moderated in August to Rs 1.12 trillion as against Rs 1.16 trillion in July, but exceeded the Rs 1-trillion mark for the second month as economic activity gained pace with a decline in Covid-19 cases, official data released on Wednesday showed.
 
Robust revenues should help the government increase expenditure to ensure economic revival. However, experts cautioned against reading too much into the recovery as GST collections dipped sequentially, core sector growth fell short of expectation in July, and the purchasing managers’ index (PMI) for manufacturing also fell.
 
The latest GST numbers pertain to transactions made in July. The collection in August is 30 per cent higher than last year and a 14 per cent higher than in 2019-20.
 
The GST number for July was slightly overestimated as around Rs 5,000 crore of arrears from June was accounted for in the month, and this could partially explain the drop in August.
 
However, the August GST number contrasts the sharp pick-up seen in the daily e-way bill generation in July, which posted a 17 per cent sequential growth. E-way bill generation, which indicates supply in the economy, recovered to an average of 2.1 million compared to 1.8 million in June.
 
Revenue from domestic transactions (including import of services) was 27 per cent higher year-on-year in the month. GST collections reached a high of Rs 1.41 trillion in April, but was dragged down by the second wave of the pandemic and fell below Rs 1 trillion for the first time in eight months in June, as large parts of the country faced localised lockdowns.
 
“With the easing out of restrictions, GST collections for July and August have again crossed Rs 1 trillion, which clearly indicates that the economy is recovering at a fast pace. Coupled with economic growth, anti-evasion activities, especially action against fake billers have also been contributing to the enhanced GST collections,” said the Ministry of Finance in a press statement. The robust GST revenues are likely to continue in the coming months, it added.

However, Aditi Nayar, chief economist, ICRA Ratings, said the sequential dip in GST collections, lower-than-expected core sector growth, and moderation in manufacturing PMI for August suggest that some caution is warranted regarding the strength of the recovery in the current quarter.
 
“We expect GDP growth in the ongoing quarter to range between 7.8-8.8 per cent, with the absolute level of GDP to continue to trail the pre-pandemic level as the services sector struggles to catch up with the rest of the economy,” Nayar said. She added that the GST collections remained healthy and will help to ease the cash flows of the Centre and the states.
The economy posted a growth of 20.1 per cent in the GDP in the first quarter of the fiscal on a low base of the last year.
 
MS Mani, senior director, Deloitte India, said most key manufacturing states have shown an increase of 25 per cent to 35 per cent in collections compared to the same period last year, indicating that the recovery may be faster in the current year. States like Tamil Nadu, Maharashtra, and Karnataka have seen collections grow over 30 per cent YoY.However, key segments of GST collection yielded less in August compared to July. For instance, central GST collection stood at Rs 20,522 crore against Rs 22,197 crore in July. State GST mop-up was Rs 26,605 crore as against Rs 28,541 crore the previous month. However, compensation cess collection was Rs 8,646 crore compared to Rs 7,790 crore in July.
 
In August, the government settled Rs 23,043 crore to CGST and Rs 19,139 crore to SGST from IGST as regular settlement. In addition, the government also did an ad hoc IGST settlement in the ratio of 50:50 between the Centre and states. The total revenue of Centre and states after regular and ad-hoc settlements in August was Rs 55,565 crore for CGST and Rs 57,744 crore for SGST.
 
The government has seen robust GST collections thanks to strict enforcement through closer monitoring of fake billing, deep data analytics using data from multiple sources including GST, income tax and Customs IT systems. Easier compliance also encouraged filing of returns.