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The June GST collections has once again brought back confidence in the government's revenue department that not only indirect tax collections in FY22 may remain closer to budget targets but also that fiscal deficit may finally be contained as per projections.

The June numbers for GST indicate a total collection of Rs 92,849 crore. While this is much lower than record number of Rs 1.41 lakh crore in April, and reasonably well collection of 1.02 lakh crore in May, it is still considered good as it largely records collections made during May, the peak of second Covid wave in India.

As per estimates made by Kotak Institutional Equities, as GST collections for FY22 are budgeted at Rs 13.1 lakh crore (Rs 5.3 lakh crore as CGST, Rs 1 lakh crore as compensation cess and Rs 6.8 lakh crore as SGST), it would warrant a required monthly run-rate of Rs 1.1 lakh crore.

This looks highly likely given the performance of GST in first three months of the year. Gross GST collections in 1QFY22 were at Rs 3.4 lakh crore, 7.3 per cent higher than 1QFY20. The pick up in e-way bill has given another indicator that economic activity is returning back to normal.

The brokerage report said that Growth and tax collections should start recovering as restrictions have started easing from June and activity levels have rebounded. This should also keep country's fiscal deficit at budgeted level of 6.8 per cent of GDP with higher-than-budgeted receipts of Rs150 billion and expenditure of Rs 690 billion.

"We expect FY2022E tax collections to be higher by around Rs 450 bn. We assume divestment to be lower by Rs 750 bn, which will be partially offset by higher RBI surplus transfer (around Rs 450 bn higher). On the expenditure front, we expect the government to exceed its expenditure target marginally after factoring in recent announcements with higher spends on fertilizer subsidy, food subsidy and health," the report said.

Given localized and less stringent lockdowns this year, the dent in tax collections seems to have been lesser. Monthly data suggests that gross tax revenues in 2MFY22 are up 152 per cent though a large part is due to low base and possibly lower refunds. 2MFY22 data indicate that tax revenues have held up well with net tax collections at 15.1 per cent of FY2022BE. However, through the second wave, expenditure growth was quite weak compared to last year: revenue expenditure fell 9.1 per cent while capital expenditure increased by 14 per cent for 2MFY22.