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Taxes continue to see strong growth in May’21…

…and spending grew by more than one-fifth

* Notwithstanding the widely spread regional lockdowns on account of the ferocious second COVID wave, the central government’s tax receipts grew strongly in May’21. After growing sharply in Apr’21, direct taxes eased last month. However, indirect taxes continued to grow sharply. Since the Reserve Bank of India changed its accounting year from Juneending till CY20 to March-ending from this year, dividends amounting to INR990b (for nine months) were paid in May’21.

* Gross taxes grew at a two-year CAGR of 21% in Apr-May’21, account for 14.1% of full year budget estimate (FY22BE). Gross receipts, therefore, came in at INR3.5t during Apr-May’21 and amounted to 18% of FY22BE, which were, by far, the highest collection in the first two months of any year in the past quarter of a century (Exhibit 1).

* The government’s total expenditure also grew 23% YoY in May’21, after a fall of 26% YoY in Apr’21. In aggregate, it stood at INR4.8t during Apr-May21, a decline of 6.6% YoY. With this, total spending was only 13.7% of its FY22BE – the lowest rate in eight years (Exhibit 2).

* Within expenditure, while revenue expenditure (revex) declined by 9.1% during the first two months of FY22, capital expenditure (capex) grew 14% YoY (Exhibit 3). Just like in total spending, revex fell 35.4% YoY in Apr’21, but grew 32.4% YoY in May’21. On the contrary, while capex had grown 66.5% YoY in Apr’21, it nosedived 41.1% YoY in May’21.

* Consequently, the government’s fiscal deficit during Apr-May’21 stood at INR1.2t, or 8.2% of FY22BE. This was, by far, the lowest deficit (vis-à-vis BE) in the first two months since FY98 (Exhibit 4).

* These numbers suggest that: a) there is a cushion in the receipts target for FY22. Despite the second COVID wave, higher base and lower disinvestments, we believe that the government would be able to achieve its receipts. b) Spending growth could be much better in the later part of FY22. c) The government would be able to meet (or slightly overachieve) its FY22 fiscal deficit target.

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