Edit: Tax mop up shows slowing economy

Ominous signs are there for everyone to see, but the Narendra Modi government seems to be oblivious to reality. It’s the economy, stupid! India may head into a long spell of an economic slowdown before the government realises, and that’s scary. How does one explain the deafening silence over the bleak tax collections in the first quarter of this fiscal, or over the fact that corporate heads are coming out into the open, flagging the economic slowdown? The tax mop-up data of the Controller General of Accounts (CGA) does not reflect the optimism that was peddled aggressively by the government while presenting the first Budget of Modi’s second term. During the April-June quarter, all tax collections grew by a modest 1.36% to Rs 4,00,421 crore. This is against the targeted gross tax collection for the fiscal of Rs 24.6 lakh crore, with an estimated growth of 18.4%. With one quarter gone meekly, gross tax collection growth will have to exceed 22% in the remaining nine months for the government to achieve its stated target. In last fiscal, too, tax collection grew moderately at 8.4% as against the expected 18%, garnering Rs 20.8 lakh crore as against the targeted Rs 22.7 lakh crore.

When the government’s tax figures were spelt out in the Budget, economic analysts and a few editors pointed out that the 18.4% growth in tax collections hoped for was rather an impossibility. Finance Minister Nirmala Sitharaman hit back saying that “every number in the Budget document is credible”. Prime Minister Modi dismissed them as “professional pessimists.” But the growth in tax collections slowing down to a decade’s low in the first quarter is not pessimism, it is hard reality!

Deepak Parekh, the chairman of HDFC, on Friday said what the government won’t say nor wants to hear when he declared that the nation was going through “trying conditions” and that the economic slowdown was here to stay. Two days earlier, Larsen & Turbo chairman A M Naik said much the same thing. The subdued tax collection mirrors the reality and concerns that some corporate chief executives are willing to publicly acknowledge. In fact, Parekh went a step ahead to say that there is an urgent need to instill confidence in banks and NBFCs to resume lending to viable projects. The stark reality is that even companies with liquid funds are not willing to risk and make investment commitments. Naik again red-flagged the government’s claims of 7% GDP growth. The government needs to wake up to the reality and acknowledge it publicly. That will be the first step to the urgent course correction needed.