What Key Economic Indications are we receiving right now?

03 November, 2021

            Sinhasi Financial Advisors

Leading indicators look forward, through the windshield, at the road ahead. Lagging indicators look backwards, through the rear window, at the road you've already travelled. A financial indicator like revenue, for example, is a lagging indicator, in that it tells you about what has already happened. But an indicator like customer satisfaction rating points to future revenue – because satisfied customers are more likely to repurchase and tell their friends about your company. Customer satisfaction, therefore, is a leading indicator.

Some of the leading indicators showing the economy track are direct and indirect taxes collected by the government. Remember when the government was struggling with GST collections and refunds were getting delayed? That was a leading indicator for example that the economy was not on the right track, and we were going to see a drop in GDP (lagging indicator) by the year end FY 20. I am glad to see some enthusing macro signals of the waning impact of the pandemic on the Indian economy for a better end to FY 21.

Direct Taxes

The government of India's direct tax revenue has witnessed robust growth so far, this fiscal.

Gross direct tax collection, including corporate tax and personal income tax revenue before adjusting for refunds, has increased 47% & 16.75% compared to FY21 & FY20 of same period (1st April to 22nd Sept), showed data released by the Finance Ministry). Hence, according to this data, current year tax collections breached the pre-covid levels by healthy 16.75%

For FY22, corporate tax collected so far is ₹3,58,806 Crores and personal income tax, including security transaction tax is at ₹2,86,873 Crores.

Net direct tax collection, after adjusting for refunds, has witnessed an increase of over 74% & 27% respectively compared to FY21 & FY20 for same period (1st April to 22nd Sept)

What the government is enthused about is the fact that net and gross direct tax collections are higher than pre-pandemic 2019-20 as well.

Robust Advance Tax

'Despite extremely challenging initial months of the fiscal year 2021-22, the Advance Tax collection in the second quarter (1st July, 2021 to 22nd September, 2021) of FY 2021-22 is ₹1,72,071 Crores which shows a growth of 51.50 percent over the corresponding period in FY 2020-21 when the Advance Tax collection was ₹1,13,571 Crores,' The Board said.

For the 1st April to 22nd Sept. period

  • FY21: ₹2,53,353 Crores
  • FY20: ₹1,62,037 Crores

The cumulative advance tax collections for the first and second quarter of the FY22 show a growth of 56 percent.

Indirect Taxes

On the indirect tax front as well, the going has been good. The gross GST revenue collected in the month of September 2021 stood at ₹1,17,010 Crores, a growth of 23 per cent over the same month last year.

Now the required run-rate is ₹1.18 Lakh Crores for the rest of FY2022 to meet the Budget estimates for GST. This, with economic recovery in progress, should not pose much of a challenge.

Although signs are encouraging and we do see some upside to Subramanian’s 2021-22 gross domestic product growth projection of 11 percent, a possible third wave of the Covid-19 pandemic will remain an unknown factor.

“Even with me being conservative and not changing my projections for real growth, nominal growth may actually be higher and tax buoyancy also contribute. So, both of those could actually lead to the tax revenues being higher than budgeted..."

Krishnamurthy Subramanian
(Chief Economic Advisor)


The leading indicators showing an upswing in the economy are the robust tax collection numbers till 22-Sept-2021

  • Tax collection till 22-Sept-2021 is 42% of budget estimates.
  • Usually, tax collection at second half of FY is 1.5X of first half of FY tax collection.

And overall, the higher tax collection reflects the strength of economy despite a serious second wave of COVID in the initial months of this FY. Higher tax collection will enable Govt to spend more on infrastructure and more job creation, It also denotes higher salary growth leading to higher consumption etc.

We urge you to have conversations with financial advisors who have seen and navigated these cyclical rises and falls. They are in the best objective position to help you understand and mitigate the risks of letting emotion get the better of you.

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No additional borrowing by Centre to meet GST compensation in FY22, BUSINESS STANDARD | Direct tax collections for FY22 soar 47% on-year to ₹ 6.45 lakh Crores as of Sept 22, THE ECONOMIC TIMES | Gross Direct Tax Revenue Up 47% In Fiscal Year-To-Date: Finance Ministry, BLOOMBERG QUINT | Exclusive | FY22 tax revenue targets could be exceeded, says chief economic advisor, MONEY CONTROL