The Union government has a problem: Of falling tax revenues, uncertain returns from a planned series of disinvestments and new demands on its exchequer, while it is trying to sort out a flailing economy. The two big tax grossers—the all-India GST and corporate tax—are likely to fall woefully short of the targets. The first is because the economy is still in a state of deepening slowdown whose bottom experts are unsure of, and goods are just not selling. The second is due to a huge tax giveaway to the corporate sector to try and arrest their sinking fortunes. While the shortfall in corporate taxes due to the tax cut is estimated at `1.25 lakh crore, the shortfall in GST could be over `60,000 crore for the whole year.
The economy is just not showing any significant signs of revival as the slowdown in demand for almost everything seems to be deepening. Among others, the SBI has cut India’s GDP growth projections for the second half of this fiscal to as low as 4.2%. Naturally, India Inc.’s results too have been reflective of this mood. Data based on results declared by over 3,000 listed firms compiled by CMIE shows non-financial firms had a 14.9% fall in net profits in the September 2019 quarter year-on-year. This implies the downward pressure on corporate taxes may actually accentuate.
Faced with this reality check, the government is doing what any individual would do under such circumstances—sell off old family silver to make ends meet. Last week it announced the strategic sale of three blue-chip firms—BPCL, Shipping Corporation of India and Container Corporation of India. All three companies have been contributing significantly to the government kitty. Other firms have been earmarked for sale to other PSUs and yet others for small equity offerings in the market. In all the government had targeted to earn `1.05 lakh crore from disinvestment. With these sales the target may just be achieved, despite the vagaries of the stock market. But questions still remain over whether it is enough to plug the huge black hole that is now emerging in the government’s revenues.