The Goods and Services Tax (GST) collection and the consumption of diesel – the two weathervanes of economic health – fell by 56% and 42%, respectively in the first two months of the current financial year compared to same period a year ago due to the nationwide lockdown.
Total GST collection in the first two months of FY-21 was Rs 94,323 crore, less than half of Rs 2,14,154 crore collected in the corresponding period of FY-20, according to a government document reviewed by HT.
A sharp fall in GST collections in April and May was expected because of the nationwide lockdown since March 25 that disrupted economic activities, but the economy is recovering as the GST collection improved significantly in May compared to the previous month, a government official said requesting anonymity.
GST, a tax on consumption, which fell by about 72% at Rs 32,172 crore in April this year, recovered substantially the following month to Rs 62,151 crore. However, the collection was about 38% short of Rs 1,00,289 crore collected in May 2019. India went through a four-phased lockdown between March 25 and May 31.
The Indian economy has been hit hard by the Covid-19 pandemic and the lockdown, and this was also reflected in a sharp fall in diesel consumption. The trend is more or less in the lines of GST collection figures as both represent the intensity of business activities, the official said.
Spokespersons at ministries of finance and petroleum did not respond to queries.
Diesel consumption saw a 55.6% fall in April 2020 at 32,50,000 metric tonnes compared to 73,23,000 metric tonnes in the same month last year, according to the oil ministry’s datakeeper Petroleum Planning and Analysis Cell (PPAC). “The drop would have been sharper, but sustained rural demand arrested the fall to some extent in the [Rabi, winter crop ] harvest season,” the official said.
Sector-specific relaxation saw some recovery in diesel demand in May, he said. The diesel consumption in May was 54,95,000 metric tonnes compared to 77,88,000 metric tonnes in May 2019, a fall to 29.4%.
Experts are hopeful that GST collections will rise and diesel consumption , recover in coming months as most economic activities have now been permitted.
Abhishek Jain, tax partner at consultancy firm EY said, “The fall in GST collections can be attributed to two main reasons, one is the muted economic activity in April and May due to Covid and the lockdown, and the other is the deferral of GST payment dates because of which some GST collections have been deferred. The fall in consumption of diesel and petrol seems largely on account of Covid and lockdown.”
Anupam Manur, assistant professor at Takshashila Institution said, “The lockdown allowed the production, distribution and sale of only essential items, a lot of which (including agricultural products) do not attract a tax. The severe restrictions placed on the movement of people and vehicles and the resultant empty streets explains the fall in diesel consumption.”
“Both the GST collections and diesel/petrol consumption should witness an uptick with lockdown being relaxed and the pickup in economic activity,” Jain said.
Manur, however, said the recovery of diesel consumptions will be far quicker than that of GST collections. “With many of the strictest rules of the lockdown lifted and movement of people and travel allowed, demand for fuel will increase.”
“Recovery of GST collections is a lot more complex and will depend on India’s ability to mend broken supply chains, restore people’s incomes and jobs, and increase consumer confidence, which will, in turn, greatly depend on how quickly we can contain the growth rate of Covid cases,” he added.
According to the latest official data, the Indian economy grew 3.1% in the three months ended March 31, 2020. The growth rate in the full financial year 2019-20 is expected to be 4.2%, the slowest in 11 years on the back of falling investment and consumption.
The slowdown is also reflected in automobile sales. According to a report published in HT on June 12, retail sales of passenger vehicles plunged 87% in May from a year earlier to 30,749 units. The country’s factory output also contracted by a record 55.5% in April, official data released on Friday said.
According to global rating agencies, the next financial year appears promising for India. S&P Global Ratings on June 10 said India’s economy is likely to achieve a strong 8.5% growth in fiscal 2020 following a 5% contraction in the current fiscal year. The same day, Fitch Ratings projected a 5% contraction in the GDP this financial year, but said it expected growth to rebound to 9.5% in the next year.