The Centres indirect tax collections grew a strong 46.2% in the first four months of the current fiscal from a year ago, pointing at a pick up in economic activity in July after industrial production growth in June came in below expectation.

The total indirect tax mop for April-July was Rs 96,223 crore, driven largely by customs collections, which grew over 70% in this period to Rs 41,545 crore.

Indirect taxes include customs duty levied on imports, excise duty on goods manufactured and service tax, and the robust collections point at strong economic activity spreading across all the important manufacturing and services sector.

This is definitely good news, especially as the data on advance taxes and the first supplementary demand for grants pointed towards a possible fiscal slippage. The robust indirect tax collections also corroborate our expectation of industrial growth picking up in July to about 8%, said Mridul Saggar, chief economist, Kotak Institutional Equities.

The Manufacturing Purchasing Managers survey for July, which rose marginally to 57.6 from 57.3 in June, also suggests an improvement in industrial output in July.

The strong growth in customs duties suggests a pick up in imports, a sign of increased investments. A part of the buoyancy in customs collection is, however, due to reimpostion of a 5% import duty on crude.

The robust indirect tax collections will help the government raise the budgeted Rs 7.47 lakh crore in the current year against Rs 6.33 lakh crore last year, an increase of 18%. Net direct tax collections during the April-July period grew at 15.75% to Rs 85,647 crore.

The Centre has already budgeted Rs 55,000 crore extra expenditure in its first supplementary demand for grants, which will consumer the bulk of the Rs 65,000 crore windfall gain from the auction of 3G and broadband wireless access spectrum.

This makes tax collections and proceeds from disinvestment important from fiscal consideration. The government has budgeted a fiscal deficit of 5.5% of the GDP in 2010-11.

The government is trying reform the indirect tax regime through a single levy, the goods and services tax (GST), in place of the plethora of central and state indirect taxes.