In the first four months of the ongoing financial year, the central government’s gross tax revenues had been fairly subdued. This had raised concerns over its fiscal math. However, collections picked up sharply in August, driven by direct taxes. Recent data released by the Controller General of Accounts shows that this surge has continued thereafter. In September, gross tax collections grew by a healthy 15.8 per cent. As a consequence, the Union government’s tax revenue has grown at a robust 16.3 per cent in the first half of the year. This is in sharp contrast to the Union budget which had factored in tax revenues to grow at around 10 per cent. These are encouraging signs.
The disaggregated data show that direct tax collections, which include both corporate and personal income tax, continue to grow at a healthy clip, with the former growing at 27 per cent in September, reflecting healthy advance tax inflows. Overall direct tax revenues have grown at 25 per cent in the first six months of the year, roughly half of the full year’s target. On the indirect tax side too, revenue has been healthy. Data released on Wednesday showed that GST collections rose by 13.4 per cent in September. With this print, GST collections have now averaged at Rs 1.66 lakh crore per month during April-October 2023, up 11.4 per cent from Rs 1.49 lakh crore during April-October 2022. This sustained increase in collections is not only indicative of the underlying momentum in the economy, the pre-festive push, but also a tightening of the tax systems to reduce evasion. Excise collections though remain below last year’s levels. On the non-tax side, the higher than budgeted transfer from the RBI will provide some cushion. However, the subdued proceeds from disinvestment remain a matter of concern. As against a target of Rs 61,000 crore, collections have so far only touched Rs 8,000 crore. Alongside, tax devolution to states continues to grow at a fairly brisk pace. Till September, the Centre had transferred Rs 4.55 lakh crore to states, up 21 per cent from last year. To meet the budget target, the government has to devolve Rs 5.66 lakh crore, roughly similar to that last year.
On the expenditure side, total central government spending was up 16 per cent in the first half of the year. Capital expenditure has continued to grow at a healthy pace, registering a growth of 29 per cent in September. In the first six months of the year, the Centre’s capex has risen by a robust 43 per cent, touching almost half of its full-year target. While it is possible that expenditure on NREGA may end up exceeding the budget allocation, and that proceeds from disinvestment undershoot the target, higher tax and non-tax collections could provide some cushion. Considering these trends, the Centre’s fiscal arithmetic looks manageable.