The welcome pick-up in GST revenues may not yet signal a sustainable economic recovery
Over ₹1.05 lakh crore has been collected from the Goods and Services Tax in October, the highest monthly revenue from the indirect tax since February 2020. This marks the second successive month of a year-on-year uptick in the GST kitty — the 10.25% rise in October was preceded by a 4% increase in September. Coming on the back of six successive months of contraction in GST revenues beginning March when the lockdown was imposed, this two-month trend clearly signifies a recovery is underway in the economy, the government has claimed. October’s revenues broadly pertain to economic activity that occurred in September, a month in which significant improvements were recorded in a range of high-frequency indicators, including exports and the purchasing managers’ index (PMI) for manufacturing. Only a part of that can be explained by the base effect — September 2019 had seen a dip in several indicators. Indeed, the wider unlocking of the economy in September when public transport restrictions were lifted and several sectors were allowed to operate with fewer curbs, helped. After the 23.9% collapse for the economy in the first quarter of 2020-21, the sense of relief from a string of positive numbers isn’t misplaced. The few signs that have come in about October’s economic performance suggest GST revenues could remain healthy in November too. The manufacturing PMI for October, released on Monday, has risen even higher, indicating large firms scaled up production further. India’s largest auto makers have clocked record sales in October, which incidentally should prop up the GST cess collections used to compensate States — a federal flashpoint this year.
Yet, any prognosis of a full-fledged economic recovery could still prove to be premature and illusory. Economists have reservations about reading too much into the September-October data as a sustainable trend, for it partly represents pent-up demand brewing over the months of lockdown finding expression, and partly India’s fabled festive season effect. North Block mandarins recently critiqued these ‘experts’ for their changing opinions, swinging from a doomsday scenario in June to a cynical ‘pent-up demand’ surmise when economic indicators improve. Talking up the economy is perhaps a necessary policy device at times, but equally critical is a realistic assessment of ground realities so as to prepare better for what lies ahead. One such parameter that needs attention is employment. The government has not ruled out more stimulus measures in the coming months. Much depends on the sensitivity of its evolving worldview, be it about the pandemic’s spread and control, or the most challenged sectors in the economy that still need support.