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Government receipts decline 13.2% YoY in Aug’21

…but spending grows 40.7% YoY during the month

* Gross receipts of the central government declined 13.2% YoY in Aug’21 (v/s growth of 71.4% YoY in Jul’21) on account of 85.9% YoY decline in non-tax receipts during the month. The decline in non-tax receipts was due to the fact that RBI dividends were paid earlier this year (in May’21), instead of Aug’20 last year. Gross tax receipts, however, grew 31.8% YoY in Aug’21 (v/s 48.9% YoY in Jul’21) on continued (albeit slower) growth in both direct and indirect tax collections.

* On the back of a 23.7% YoY contraction over Apr–Aug’20, gross tax collections surged 70.5% YoY to INR8.6t over Apr– Aug’21, accounting for 38.8% of FY22BE – compared with only 20.8% of BE last year and an average ~28% of BEs collected in the corresponding months of the previous three years (FY18–20). On a two-year CAGR basis, gross tax collections grew 14.1% YoY during Apr–Aug’21 (v/s 13.6% YoY during Apr–Jul’21).

* Within direct taxes, corporate income tax collections more than doubled in Aug’21, and personal income taxes grew 44% YoY during the month. Consequently, direct taxes grew 61% YoY in Aug’21 (v/s 112% YoY growth in Jul’21). With this, direct tax collections by the government stood at INR3.7t, 33.2% of FY22BE (the highest in the past two decades).

* Within indirect taxes, all major components – Goods and Services Tax, excise duty, and customs duty – saw a jump in Aug’21 (v/s Aug’20 levels). The government has thus far received 44.4% of the indirect tax target of FY22BE.  Gross receipts of the government grew by a whopping 114.3% YoY to INR8.1t over Apr–Aug’21 (40.9% of FY22BE). On a two-year CAGR basis, total receipts surged 14.1% YoY during Apr–Aug’21 (v/s 30.8% YoY during Apr–Jul’21).

* On the contrary, total government expenditure grew at a five-month high of 40.7% YoY in Aug’21 (v/s contraction of 23.3% YoY in Jul’21). Growth came from the near-doubling of capital expenditure and 33.9% YoY growth in revenue expenditure in Aug’21. During Apr–Aug’21, total fiscal spending stood at INR12.8t, growth of 2.3% YoY (v/s decline of 4.7% YoY over Apr–Jul’21). The government has achieved only 36.7% of its total spending target for FY22BE up to Aug’21 this year.

* As a result of strong growth in receipts vis-à-vis marginal growth in expenditure, the government’s fiscal deficit during Apr–Aug’21 stood at INR4.7t. This accounts for only 31.1% of FY22BE (v/s INR8.7t or 109.3% of FY21BE achieved during Apr–Aug’20).

* As mentioned in our recently released 3QCY21 QEO, we believe the growth in fiscal spending in 2HFY22 (accentuated by relief measures pertaining to COVID) would balance out the marked rise in receipts this year, leading to a fiscal deficit of INR15t (the same as FY22BE). However, due to our expectation of higher nominal GDP growth of 16.9% YoY in FY22 (v/s the government target of 12.9% YoY), fiscal deficit as a percentage of GDP may come in at 6.5% of GDP (v/s 6.8% in FY22BE).

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