Do soaring tax revenues mean DeMon's worked?

The world—and India—is sinking into recession. This normally means falling tax revenue and rising welfare payments that send the fiscal deficit soaring.

- SWAMINATHAN S ANKLESARIA AIYAR

Surprisingly, tax revenue is soaring, creating a comfortable fiscal situation. Ashima Goyal, member of the Reserve Bank’s Monetary Policy Committee, suggests this is a consequence of demonetisation (DM). Really?

Adverse budgetary factors today include extension of the free-feeding scheme, higher subsidies for fertilisers and petroleum products, and higher interest payments. Even so, the half-yearly fiscal deficit was just 35% of the annual estimate against the historical average of 77%. The main reason was that central tax revenue in this period shot up to a record 53% of the annual estimate.

GST has boomed. Starting in 2017 it replaced hundreds of separate state-wise duties with an all-India tax structure. India’s system had more GST rates than any other country, facilitating tax misdeclaration. Glitches galore impeded GST collection and for years collections fell short of even Rs 1 trillion per month. Suddenly the monthly average has soared to over Rs 1.4 trillion. The October collection hit Rs 1.52 trillion. GST revenue in the last 12 months has totalled a record 7% of GDP. This reflects procedural improvements to check evasion and looks at permanent structural improvement.