Centre must shed conservative approach, front load its expenditure to further economic recovery

4th Sep,2021

Centre must shed conservative approach, front load its expenditure to further economic recovery


Surprisingly, despite strong income growth that allows the government to provide assistance for the economy, data shows that the government is spending conservatively. The Controller General of Accounts (CGA) recently revealed data that shows the federal government's budgetary health is stronger than predicted. The Centre's gross tax collections in the first four months of the current fiscal year (April-July) have already surpassed 31% of the projected target for the year, a considerable increase over prior years. Despite the GDP contracting by about 9%, tax receipts are over 30% higher than in 2019-20. There is, however, grounds for alarm. When combined with lacklustre disinvestment proceeds, the manufacturing purchasing managers index losing steam in August, and lower-than-expected core-sector statistics, the drop in GST revenues in August raises worries about the recovery's long-term viability and government finances. Direct tax collections continue to trail indirect tax revenues, according to the CGA's disaggregated fiscal statistics. However, both corporate and income taxes have seen substantial increase so far this year under the heading of direct taxes. While excise tax revenues continue to expand at a rapid rate, GST receipts have decreased. Despite a "strong improvement in the GST e way bills to a daily average of 2.1 million in July 2021 from 1.8 million in June 2021, which was reflected of the removal of limitations notably across the Southern states," according to ICRA, the drop has happened. The sluggish pace with which the disinvestment objective is being met is another cause for worry. In comparison to the objective of Rs 1.75 lakh crore, just Rs 8,368 crore has been raised so far. Surprisingly, despite strong income growth, which allows the government to increase assistance for the economy, data shows that the government is spending conservatively. Revenue expenditure has been lower than last year in the first four months of the current fiscal year, and only modestly higher than in 2019-20. When the country was in the throes of the Covid second wave, GDP estimates showed that overall government consumption spending fell by 4.8 percent in the first quarter of the current fiscal year. Capital spending fell in July as well, but it was greater for the entire four-month period than last year and the year before. Given the unequal character of the recovery, the stressed financial condition of MSMEs, and the financial situation of lower-income people, the government should provide.