Centre's Q1 revenue & paradox of RBI's surplus transfer

Revenue collection, keeping in mind a huge expenditure agenda appears to be the most worrisome aspect of a country especially when it passes through periods of lockdowns.
Centre's Q1 revenue & paradox of RBI's surplus transfer

Udayan Hazarika

(The writer can be reached at udayanhazarika@hotmail.com)

Revenue collection, keeping in mind a huge expenditure agenda appears to be the most worrisome aspect of a country especially when it passes through periods of lockdowns. Last year, when the budget was presented before the House, nobody thought that the country was inching towards an unwarranted lockdown to tackle the threat of a pandemic. The budget presented was as usual normal where an enthusiastic target for revenue collection was set as before. But later, it had to be revised downward. Similar is the case this year too. By the time the budget was placed, the first wave of Covid-19 was almost over and the business in the economy has just found its rhythm towards functioning normally and a normal target for revenue collection was set to achieve. But just then the second wave of the Covid-19 started with a tremendous force. However, this time, the country has recalled its past experiences concerning the result of the total lockdown and accordingly instead of imposing a countrywide total lockdown, advised the States to impose lockdown in the segments where the impact of the pandemic is acute. This has helped to keep the business chain alive although with a pause here and there. During the first two months of the fiscal, business was sporadic – as some bigger States had imposed lockdown- some partially and some fully.

The government's collection of revenue is very important for the States and they always keep an eye on it as over a major share of this collection they have the rights.

As per budget 2021-22, out of the total collection of revenue, an amount of Rs 13.89 lakh crore has to be devolved to the States and Union territories of which Rs 6.66 lakh crore has been budgeted as a share of Central taxes to the States and UTs and Rs 7.23 lakh crore as grants and loan from Centre under various heads including deficit grants to the 14 States as recommended by the 15th Finance Commission. But it has been a common experience of the States that unless the central coffer is full of resources, Government never transfers even the admissible amounts to the States not to speak of devolving any additional amount. Therefore, revenue collections of the Centre have a great bearing on the States' income. Last year, Government could not collect sufficient taxes and surcharges as a result of which the States were deprived of some of their shares of taxes and surcharges. Let us have a look at the trend of Centre's collection of revenue during the first quarter (April-June/21) of FY 22.

Even though the year FY-22 opened up with lockdowns, the revenue collection in the first three months (April-June) (QI) was at its best so far. The collection status was encouraging as it rose to Rs 5.6 lakh crore as against the last year's Rs 3.01 lakh crore of the same quarter. The increase is about to 86%. Out of this total collection, Rs 2.46 lakh crore is the mop-up from direct taxes as against last year's collection of Rs 1.18 lakh crore. Similarly, Rs 3.11 lakh crore of indirect tax was collected as against Rs 1.83 lakh crore collected during the same period of last year thereby giving an increment of 70.3 per cent. However, one point needs to be remembered that comparing with the last year's performance will not give an accurate picture as last year was the pandemic dominated year.

The GST comprises about 28 per cent of the country's total gross tax revenue. The gross GST revenue collection during the first quarter of FY-22 was Rs 3,36,942 crore. There was record collection in April followed by May registering a collection of above Rs 1.0 lakh crore in both cases, but it fell to Rs 93,000 crore in June. Of the above total amount, Rs1.71 crore (50.74%) was from the IGST, Rs 78,761 crore SGST and Rs 61,853 crore were from CGST. This trend of the first quarter has also been maintained in July with the total collection of Rs 1.16 lakh crore. Of this amount, Rs 57,864 crore (about 50 per cent) has come from IGST followed by Rs 28,541 crore (24.52%) from SGST and Rs 22,197 crore from CGST (19.07 per cent).

While the tax front is presenting a picture of a more or less economic rebound, in the area of disinvestment, however, the government is showing a dismal picture. Despite pathetic performance last year on this front due to pandemic situation, the government this year also fixed enthusiastic targets for collection of Rs 2.1 lakh crore from disinvestment. But till the end of Q1, no amount could be collected under this head. As per the statement given by the Minister of State Finance in the Lok Sabha, the disinvestment will be carried out as per the schedule and will be completed soon.

The realisation of the share of interest and profits of public sector banks and undertakings is one important source of revenue of the Central Government. This forms a component of the non-tax revenue. The budgetary target in respect of 'Dividends and Profits' for FY-22 was fixed at Rs 1.03538 lakh crore. This year the most talked issue about this receipt head is the transfer made by the RBI to the Government. After the 589th meet of the Central Board of the RBI, the following announcements came in: "The Board also approved the transfer of Rs 99,122 crore as surplus to the Central Government for the accounting period of nine months ended March 31, 2021 (July 2020-March 2021), while deciding to maintain the Contingency Risk buffer". The matter relating to the transfer of RBI reserves to the Government was occupying centre stage since 2018 when Government finally constituted Jalan Panel. The panel suggested that the RBI has to maintain a contingency risk buffer of 5.5-6.5 per cent of its balance sheet. Accordingly, taking advantage of this range of 1.0 per cent, the RBI moves freely between this range - sometimes taking the minimum range and spare the amount as surplus to centre and sometimes taking the upper bound leaving no spare amount. This is happening since 2019-20. The issue of transfer of the RBI's reserves had emerged as a major bone of contention between the previous RBI governor, Urjit Patel, and the Narendra Modi government. This was vehemently criticised by various RBI Governors and deputy Governors calling it will lead to catastrophe.

This year, the Government has received a huge amount of Rs 99,122 crore from the Reserve Bank of India as a surplus keeping the CRB at 5.5 per cent. It is yet to be ascertained as to which head of the account this amount is being transferred. This amount is neither profit nor an amount that is to be transferred to Government. RBI is not like any other banking institution which is supposed to transfer the profit's share to the Government. So what is the reason behind this gesture of RBI?

The amount will be credited under the head of the account "dividends and profits" under non-tax revenue. This will on one hand help the government in reducing its borrowing targets as set in the budget thereby reducing the fiscal deficit. This is not a healthy procedure indeed. The RBI Deputy Governor while addressing the press disclosed that this method of transferring surplus funds is not a policy change but only an accounting issue. This accounting issue is only from the angle of RBI what it is in terms of Government. Such amounts will only exert huge inflationary pressure on the economy. Questions also arise – does the surplus exist? How do these surpluses come about? Has the RBI drastically reduced its expenditure/ otherwise how does such a huge surplus occurs in the years of a pandemic? A careful examination will show that this practice has come into being only after 2018-19 after Mr Satikanta Das took over the charge of Governor- a person of administrative acumen but who never worked in the department of expenditure and neither an economist.

Practising jugglery while presenting the financial white paper (including budget) is not a new phenomenon but it has a limit. People do not understand so much of economic jargon. But they do understand when public leaders cheat them and attempt to cover up such misdeeds- because they also feel the pinch of price rise directly or indirectly. Inflation does not spare the rich or poor.

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