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Collects 29% of its full-year target in 1QFY23

* GST collections in Jun’22 totaled INR1.4t, implying a sharp growth of 56% YoY. On a sequential basis, GST collections grew by 2.6% MoM in Jun’22 as compared to a contraction of 16% MoM in May’22. This is the 12th consecutive month of over INR1t in collections and the fourth month of more than INR1.4t in collections.

* With this, the government has collected INR4.5t in GST in 1QFY23, ~29% of its FY23BE as compared to INR3.3t collected during the corresponding months of last year (which was ~26% of its FY22BE).

* Within the total, CGST collections amounted to INR253.1b (up 54.1% YoY led by a low base). SGST collections stood at INR324.1b (up 58.9% YoY). While GST collections on imports grew at a 12-month high of 54.7% YoY to INR401b in Jun’22, the same on domestic activity grew 55.8% YoY to INR1.05t.

* The 56% YoY growth in total GST collections implies higher domestic demand in the economy. To understand the implications, we conducted an analysis to segregate the impact of price inflation on GST growth. We took 78 items constituting 60% weightage in the Consumer Price Index (CPI) basket and used them to deflate nominal GST collections on a monthly basis. Our calculation suggests that real GST collections grew by 46.2% YoY in Jun’22, as compared to nominal GST growth of 56% YoY. On a quarterly basis, while nominal GST grew by 37.1% YoY in 1QFY23, real GST grew by 27.8% YoY. Thus, confirming a recovery in domestic demand. The price impact on GST growth is visible, but is not stark.

* Daily e-way bill collection in May’22 stood at 2.4m units, lower than that in Apr’22. However, actual GST collections in Jun’22 were slightly higher as compared to that in May’22. This implies that either volumes have increased or the value of goods sold has. While the former implies faster economic activity, the latter may imply higher inflation.

* At 29%, the GST collection in 1QFY23 is the highest since its inception. With this, 29% of the government’s FY23 GST target has been achieved in just three months. Going forward, the government needs to garner ~INR1.23t of GST on an average in the remainder of FY23 to achieve its full-year goal. Looking at the momentum in collections, it is likely the government may overshoot its GST collection target by ~INR1.5t in FY23. If so, this may help the government to overshoot its total receipts target, leading to a slightly lower fiscal deficit of 6.2% of GDP (v/s FY23BE of 6.4% of GDP), provided the spending target is met accurately.

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