State-wise Goods & Services Tax (GST) collections in July showed an 11.1 percent month-on-month dip in most states, except a few small ones, government data revealed. State-wise GST collections is a proxy for manufacturing and services activity in the economy. Last month, Prime Minister Narendra Modi invited global companies to set up businesses in India, and said that the country is already seeing green shoots of an economic recovery.
GST collections account for almost 60 percent of states’ revenues. The nationwide lockdown imposed to contain the outbreak of the COVID-19 pandemic led to falling GST collections. Though the lockdown restrictions have been mostly lifted, rising number of cases have resulted in a rise in the number of containment zones, which have continued to hit supply chains.
Other indicators like Purchase Manager’s Index point to a slowdown in economic activity, as manufacturing PMI fell to 46 in July, for the first time in four months, from 47.2 a month ago due to the extension of the lockdown. State-wise GST data shows that the dip in collections is true for both consumer and manufacturing states. Consuming states like Punjab and Kerala have seen a significant month-on-month decline in GST collections. Punjab and Kerala saw an 11.5 percent and 13.8 percent fall in collections month-on-month, respectively.
The scenario is similar for manufacturing states too. GST collections in Maharashtra and Tamil Nadu fell 19.8 percent and 7.8 percent MoM, respectively. For Delhi, GST collections in July fell 23.8 percent. Most of these states have seen a huge rise in the number of positive coronavirus cases, forcing states to reimpose lockdowns. In Punjab, on an average, new coronavirus cases almost tripled in July compared to June. Kerala, which had earlier successfully containing the virus, saw a six-fold increase. Average number of new cases has more than doubled in Maharashtra and Tamil Nadu in July from a month ago.
The data indicates that consumer spending have been hit in July due to rising number of COVID cases in states and re-imposition of restrictions to curb its spread. The Indian economy was in a slowdown even before the COVID-19 pandemic hit India. This was reflected in the weak economic indicators and slowing GST collections. In October, payments to states got delayed as collections were lower-than-expected.
Though the Centre has paid states their dues for FY20, falling collections and bleak growth expectations for FY21 have put the Centre in a fix on how to continue compensating states.