A 39 per cent year-on-year surge in indirect tax collection in April-May has not only raised hopes of higher-than-expected indirect tax mop-up of 19 per cent for 2015-16 but may also place the government in much comfortable position in terms of its spending for the year. According to a Barclays report, if the revenue buoyancy is maintained it would open up room for fiscal spending and the government could increase expenditure by up to Rs 1,00,000 crore during the year. Indirect tax collection is likely to stay strong given higher excise duty on petroleum products, customs duty, and an increase in the service tax rate from 12.36 per cent to 14 per cent.
tax, indirect tax, indirect tax mop up, indirect tax clearance, indirect tax clear, direct tax, india direct tax, india indirect tax, gdp, gdp india, gdp growth, business news With the government enjoying a surge in revenue on greater collection of excise and customs duties, revenue growth target could eventually be exceeded by a large margin. And, in this case, the government can either go for increase in spending, particularly in public investment (highways, ports and railways) or could use it to consolidate the fiscal position. The report, however, said that given the focus on reviving growth, the bias would be to opt for the former option.
Based on current trends, the government’s 2015-16 revenue collection could total Rs 50,000 crore to Rs 1,00,000 crore higher than that assumed in the Union Budget. If the fiscal impulse reaches 60 basis points of GDP, it could add 20-30 basis points to GDP growth and push real GDP growth closer to 8 per cent. Barclays says that the government could front-load spending and hence the impact on growth may be amplified in first half of 2015-16 compared with second half of 2015-16.
The impact of a front-loading of higher government spending could be significant for growth optics and India’s GDP growth rate can potentially be pushed above 8 per cent in next two quarters, if the cyclical recovery in manufacturing and some services sector is aided by higher government spending.
While the government is forecasting a fiscal deficit of 3.9 per cent of GDP for 2015-16, down marginally from 4 per cent 2014-15, the target can be easily achieved with a modest nominal GDP growth.
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