If we were to gauge the health of the Indian economy through the lens of tax collections, there is little scope for finding a fault. Factor in the rise in consumer price index (CPI), more commonly known as inflation, and you will get a more realistic picture about the current state of affairs. Data helps to tell stories with persuasion. The direct and indirect taxes collected in financial year (FY) 2021-22 indicate towards a recovery in the Indian economy.
A bumper goods and services tax (GST) revenue shows how dependent the national exchequer is on indirect taxes. GST is a tax on consumption and any further rate increases may negatively impact consumption. As per the data available, fuel consumption has dropped in the first two weeks of April. Net direct tax collections in FY 2021-22 were at ₹13,63,038 crore, showing a growth of over 48.4% over previous year.
IndEcon (Indian economy) is a monthly feature, where it is our Endeavour to Decipher® key economic developments and statistics from the past month/quarter.
GST Collection
The gross GST revenue collected in the month of March was ₹1,42,095 crore. It is an all time high figure, breaching the earlier record of ₹1,40,986 crore collected in the month of January 2022. The revenues for March 2022 are 15% higher than the GST revenues in the same month last year and 46% higher than the GST revenues in March 2020.
The average monthly gross GST collection for the last quarter of the FY 2021-22 has been ₹1.38 lakh crore against the average monthly collection of ₹1.10 lakh crore, ₹1.15 lakh crore and ₹1.30 lakh crore in the first, second and third quarters, respectively.
Indian Economy: Automobile Sector
The full recovery of the Indian vehicle market is still far away. In the meanwhile, there are several subplots taking shape. Electric vehicles (EV) are making their presence felt, as awareness about the benefits and charging infrastructure become more prevalent. There is a long waiting period for most passenger vehicles. Instant unavailability of desired vehicle is aiding the used vehicle market.
The federation of automobile dealers’ association (FADA) has urged all 2-wheeler manufacturers “to introduce special schemes to uplift the morale of this segment to boost sales.” Commercial vehicles may have better days ahead, with help from government’s infra push and replacement demand. Due to the low base effect, all vehicle categories are in the green when compared with the corresponding figures of last FY.
Every third 2-wheeler sold in India is from the house of Hero Motocorp and this makes it the leader of the segment. Honda and TVS sit comfortably on the second and third spot, respectively. Maruti Suzuki India sold 11,65,483 cars in FY 2021-22, and ended the year with a market-leading 42.75% share. The passenger vehicle divisions of Tata Motors and Mahindra & Mahindra, registered annual growth of 66% and 46%, respectively. Such jump in sales, helped Tata Motors to gain 400 basis points in the overall market pie, while Maruti lost 600 basis points in the past twelve months.
Flight of Capital and NIFTY
The Indian stock market has shown resilience in the last two quarters. Offshore investors became net sellers for the sixth month in a row in March. They pulled out ₹1,22,239 crores from the Indian market in the last FY. Domestic institution and retail investor participation provided support and stability to the financial markets. Corporates are expected to report bumper sales in the coming months, but high input costs will affect profitability.
NIFTY has been range bound for the past six months and is yet to breach the highs of October 2021. The initial public offering (IPO) of Life Insurance Corporation (LIC), is expected in the coming weeks, and is sure to garner investor attention. Government has roped in multiple anchor investors for LIC’s IPO, and may offload higher than expected stake in the insurance giant.
Indian Economy: Inflation
The rise in prices of essential goods and services in the Indian economy is no longer transitory. The Reserve Bank of India (RBI) has a lot on its plate. The headline inflation number has breached the upper limit, of 6% set by the RBI, for the third month in a row. Rising fuel costs have wreaked havoc on household budgets. Clothing and footwear remain an area of concern, as they registered double-digit percentage growth in prices over the last year. Vegetable and oils & fats have shown steady increase in prices over the last twelve months.
Higher cost of living has started to show its impact on household budgets. Families living in urban areas have started to admit their children in government funded schools. There are other subtle readjustments taking place in the Indian economy. The savings of middle-class families were eroded in the aftermath of the Covid-19 pandemic, and with hyperinflation there is little scope for improvement to this metric.
Hope: Word Power
India cannot afford to be complacent about its demographic potential. We need more jobs and a push in spending from the government. There are evident signs for optimism and apparent blind spots in our economy. The euphoria of buoyant tax collections should not overlook the idle sectors of the country. There are several external forces, over which we have little or no control, but this should not be used as an excuse by the policymakers. Hope is a powerful four-letter word, but it cannot work in isolation. We need vision and execution to realise the expectations of a billion-plus people.