Revenues from the GST crossed the ₹1-lakh crore mark for the second month in a row in November. The healthiest indirect tax collection streak since the national lockdown to combat COVID-19 in March, it is an encouraging sign for the economy that contracted less-than-expected in the second quarter. GST revenues in a month are a reflection of transactions from the previous month. The uptick in October’s GST collections can be partly explained by the speedier unlocking of the economy in September as public transport restrictions were lifted in most parts of India. Some compliance-related relaxations for GST-paying businesses also pushed up collections significantly. There is no such compliance caveat attached to November’s GST kitty — even though it is about ₹200 crore lower than the ₹1,05,155 crore from October. This suggests that the first month of the third quarter did see a genuine improvement in activity, whether it was driven by pent-up or festive demand, or a bit of both. This also ties in with other indicators from October, be it auto sales or the Purchasing Managers’ Index (PMI) for manufacturing, which hit a 12-year high that month. With Deepavali falling in November this year (it was in October last year), some festive spending effect may be expected to come through in December’s GST collections as well. The question is whether the improved demand trend will hold after the festival exuberance fades.
There are some early signs that the fervour and pace of economic activity already began to moderate in November. For instance, e-way bills generated by GST-covered entities fell nearly 14% to 55.3 million in November from 64.1 million in October, while the latest PMI indicates slower growth in orders and a further decline in employment as businesses are wary of the pandemic’s lingering uncertainties. While India’s infections have declined since September, some parts, including Delhi, Rajasthan and Gujarat, are seeing sharper spikes, prompting fresh travel curbs from there to the commercial capital Mumbai. In November, only Andhra Pradesh, Gujarat and Tamil Nadu saw double-digit growth in GST collections among major States, while Delhi’s inflows fell 15% and Maharashtra’s by 6% year-on-year. Thus, economic activity that has resumed remains fragile while the recovery seen so far has been uneven across States, thanks to the virus’s unpredictable spread. The government has been conservative so far in its stimulus and support measures, despite which its fiscal math for 2020-21 will go awry. More direct and specific measures to help employment-intensive sectors, particularly those in distress such as travel and tourism or retail, are needed to ensure that further job losses today do not translate into tomorrow’s demand slump.
