GST appears to be functioning like the modern ultra-fast Vande Bharat express. A Vande Bharat express going at full throttle. GST revenue for the month of November 2022 exceeded the Rs 1.4 lakh crore mark for the ninth month in a row. The revenue touched Rs 1,45,867 crore with the IGST element continuing to be the highest. At Rs 77,103 crore this is nearly 53 percent of the total GST revenue.

The import component of IGST at Rs 38,635 crore is more than the import component of IGST generated in the previous month. This is also an indication of high imports and the consequential trade deficit.

The revenue performance must be juxtaposed with the Index of Industrial Production (IIP) data released by the Ministry of Statistics & Programme Implementation (MoSPI) on the last day of November.

The IIP grew by 1.5 percent in the second quarter of 2022-23 over the corresponding period of last year. Manufacturing and mining dragged the overall performance down. The manufacturing sector grew by 1.4 percent as against 8.6 percent in the corresponding period last year. The performance of the mining sector dropped by 1 percent as compared to a growth of 17.15 in the same period last year.

Gross Domestic Product consequently got impacted. Further, inflation and poor exports too took a toll on GDP growth. It may be recalled that GDP had grown by 8.4 percent in the second quarter of 2021-22 and 13.5 percent in the first quarter of 2022-23.

GDP over various economic parameters is measured in terms of Gross Value Addition (GVA). The GVA both in manufacturing and mining fell to minus 4.3 percent and minus 2.8 percent respectively. The overall GDP growth consequently got impacted -it dipped to 6.3 percent.

Having said that the GDP growth across other major economies has been poor. USA, UK, France, Germany, Japan have witnessed GDP growth ranging from 0.6 percent to 1.1 percent. Inflation has troubled most of the global economies.

The scenario has been similar in India too. The retail price inflation eased to 6.77 percent in October 2022, down from September's high of 7.41 percent. It however is still above the RBI’s tolerance levels.

Obviously, the GST revenue has maintained robust levels on the back of good manufacturing performance. The manufacturing PMI index compiled by S&P Global rose to 55.7 in November- up from October’s 55.3. This is the seventeenth continuous month of expansion in manufacturing production in India. This is despite depression in global demand .

November witnessed strong auto sales. Passenger vehicles, farm equipment and tractors, two wheelers including electric two wheelers all did well. The month also saw petrol and diesel sales grow by double digit. The railway freight figures also saw record movement of goods. Air passenger traffic as also hotel occupancy has seen growth-to almost pre-pandemic levels. 

The services PMI index also rose in November to 56.4, up from the October figure of 55.1. A combination of factors were said to be at play-both favourable demand and strong advertising driving the growth in services.

In this robust growth scenario we have to take cognizance of very many other factors.

India’s jobless rate as per the Centre for Monitoring Indian Economy (CMIE) rose to a 3 month high of 8 percent. The urban rate being 8.96 percent and the rural rate 7.21 percent. We should not lose sight of the fact that on the GVA side five sectors including agriculture, electricity, gas, water supply and other utility services and constructions posted sequential contraction. Expenditure has slowed down.

If the projected growth target has to be achieved it is essential that push from government expenditure has to be much more. Fiscal deficit has been growing. The forex reserves have been falling -though still providing comfortable import cover. Our exports have been underperforming. They are significant contributors to the GDP and need to achieve the ambitious targets if there has to be growth in the GDP.

GST revenue has been a consistently high performer. Its positive impact has also rubbed off on the direct taxes side. This would suggest that compliance is improving. The combination of technology facilitating data analytics, effective enforcement action and close coordination between the various wings of the Government of India have been acting as deterrents.

The much-delayed GST Council meeting is scheduled to be held in the third week of December. It is incumbent that areas of concern of the States get addressed. The long-delayed decision on online gaming needs to be resolved. A final decision on the even longer delayed decision regarding the contours of the GST Tribunal needs to be finalized. The exercise of reviewing exemptions should continue.

CEA Anantha Nageswaran has expressed confidence that the recovery is on track, and we should clock between 6.8 percent to 7 percent growth this year. CARE Ratings have also projected a GDP growth of 6.8-7 percent for FY 23. Despite the headwinds and global uncertainty, it is indeed possible that we achieve this growth.

To carry the Vande Bharat analogy further, Vande Bharat express is presently running at speeds of 130-150 kmph as against its capability of easily touching 180 kmph. However, their speed is limited because of the condition of the tracks which are not capable of supporting such high speeds. GST too can achieve much higher revenues. It is essential that the necessary eco-system is constantly upgraded.

— Najib Shah is a former chairman of the Central Board of Indirect Taxes & Customs. The views expressed in this article are his own.