Improved tax collections, manufacturing bolster India's growth credentials

The seasonally adjusted HSBC India PMI recovered from Dec’s 18-month low. (Photo: Mint)
The seasonally adjusted HSBC India PMI recovered from Dec’s 18-month low. (Photo: Mint)


  • GST collections grew 12.5% y-o-y last month; fiscal growth 11.7%

New Delhi: The Indian economy's sharp acceleration in the December quarter has been bolstered by equally impressive tax collections and growing momentum in manufacturing.

Central and state governments collected 1.68 trillion in goods and services tax (GST) revenue in February, 12.5% more than the revenue collected February 2023, amid strong manufacturing activity and economic growth momentum. However, the number was a tad lower than January’s figure of 1.72 trillion.

The finance ministry said that monthly average GST revenue collection this fiscal has gone up to 1.67 trillion, from 1.5 trillion last fiscal as “GST revenue figures demonstrate continued growth momentum and positive performance".

So far this financial year, gross GST revenue collection stands at 18.4 trillion, showing an annual growth of 11.7%, the ministry said.

Manish Mishra, partner and head of indirect tax practice at JSA Advocates and Solicitors, said that increased revenue collection efforts on the part of the authorities coupled with continued issuance and adjudication of notices have been significant contributors to revenue growth. 

“Buoyancy in tax collections is expected to continue in March, being the last month of the financial year, due to increased recovery efforts by the authorities," he said.

Another high frequency indicator showed on Friday that manufacturing activity was going strong. S&P Global’s survey of around 400 manufacturing purchase managers showed that production rose at its fastest pace in five months in February, fuelled by the quickest increase in sales since last September and the strongest expansion in new export orders for 21 months.

The seasonally adjusted HSBC India manufacturing purchasing managers’ index (PMI) recovered further from December’s 18-month low of 54.9, rising to 56.5 in January and then to 56.9 in February. 

The latest reading pointed to the strongest improvement in the health of the sector since September 2023, S&P Global said. The index ranges between 0 and 100, with a reading above 50 showing an expansion compared to the previous month, and below 50 an overall decrease.

“The HSBC final India manufacturing PMI indicates that production growth continued to be strong, supported by both domestic and external demand. Manufacturing firms’ margins improved as input price inflation slipped to the lowest since July 2020," S&P Global said in a statement quoting Ines Lam, economist at HSBC.

Reflecting the growth momentum in economic activities, the ministry of railways said on Friday its originating freight loading saw more than 10% jump annually in February to 136.6 million tonnes and its freight revenue jumped 9.98% in the month to 14,931.89 crore compared to that of the same month a year ago.

Meanwhile, automobile companies Tata Motors, Toyota and Mahindra and Mahindra reported steady rise sales in February, continuing the trend of good growth seen in the economy.

The strong revenue collection trend in GST, a tax on consumption, comes in the wake of the statistics ministry raising its growth forecast for FY24 to 7.6%, up from its earlier projection of 7.3%, aided by investments in plant and machinery, manufacturing activities, and improved cross-border trade.

Also, India's GDP grew at a faster-than-expected 8.4% clip in the third quarter.

Finance ministry data showed that growth in GST revenue receipts from domestic transactions went up by 13.9% in February, while the same from import of goods rose by 8.5%.

Implementation of stringent compliance measures on the GSTN portal, which processes tax returns, can be inferred to have contributed to the growth in GST collections, said Surbhi Punshi, tax expert and lead product manager at Cleartax, a technology firm offering GST-related services.

For example, businesses cannot file their current month’s tax return that summarizing all sales unless they have filed the previous month’s self-declaration of transactions. 

“The government’s efforts to tighten compliance, along with the digitalization of tax processes and the introduction of measures to curb tax evasion, are likely significant contributors to the growth in GST collections," said Punshi.

GST revenue net of refunds for February 2024 is 1.51 trillion, which shows a growth of 13.6% over that for the same period last year. After settlement of inter-state sales, the central government collected 73,641 crore, and states 75,569 crore in GST receipts.

Economists pointed out that India’s economic growth is increasingly being powered by domestic demand while net exports faces uncertainty due to geopolitical reasons.


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