Indian Economy slowing down due to shortfall in tax revenue

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India expected a historic change after the government of BJP (Bharatiya Janata Party) approved the goods and services tax. India finally achieved its idea of “one nation, one tax.”

But now, a few years after the introduction of GST, the profits generated are much lower than expected revenues, creating huge budget gaps in each state.

With the central government unable to make timely payments, the shortage of goods and services tax has plagued many states because they are struggling to reach the breakeven point. Five states ruled by the opposition have expressed concern over the delay from August to September.

This will also pose problems for the 2019-2020 fiscal year forecast. The federal budget has collected significant GST revenues to reduce its budget deficit. But as the collections continue to be insufficient, the deficit will increase and limit the ability of the government of Narendra Modi to spend on welfare programs. The five states which complained about the issue including Punjab, Rajasthan, Kerala, Delhi, and West Bengal in a joint statement, “The GST compensation for the month of August and September, required to be paid by the central government sometime in October, continues to be outstanding.”

“GST comprises nearly 60% of the tax revenues of states. Many states are already facing deficits up to 50% of the total GST. Such huge deficits have the potential to disrupt the budget and planning processes in a host of areas literally bringing activities of the states to a grinding halt.”, the joint statement said.

Finance Minister Manpreet Singh Badal said in a statement, “Punjab is also under threat of overdraft if the dues are not released immediately as it is awaiting 21 billion rupees as compensation, while arrears stand at 20 billion rupees ($279 million).”

Minister Manish Sisodia, The Deputy Cheif Minister told in a statement that due to the delayed payments, the national finances are under pressure. The GST compensation due to Delhi is 23.55 billion rupees ($328 million).

The GST collection throughout the year has been lower than expected. The gross revenue from goods and services tax collected in October amounted to Rs 954 billion rupees (US $13.3 billion), a decrease of 5.29% since October 2018. The government expects the average monthly collection to exceed Rs 1 trillion rupees. However, in this year, such a collection was seen in only three of the seven months.

Meanwhile, sales of cars have dropped by 6.3% in October 2019 since last year. Sales of two-wheelers have been dropped by 14.4% and that of buses and trucks have dropped by 23.3% since last year.

The factory output of India dropped by 4.3% due to the decrease in the production of capital goods in September, which is the lowest in eight years.

 

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