Yesterday Bloomberg reported that the budget gap for FY 2019-20 was 4.4%, much higher than thought so in February. Even before COVID-19, the CGA had reported that the Central Government’s tax revenues had grown just 1.9% in the first 11 months of FY 2019-20
Until February 2019: Rs 1093923 Crores
Until February 2020: Rs 1114636 Crores
This is not only due to the significant slowdown in the economy starting early 2018 but also due to the massive corporate tax cut late last year. Personal Taxes and GST growth too had slowed down substantially.
But with COVID and lockdown in March, GST collections were just Rs 28309 crores, down from Rs 1.13 lakh crores reported last March. The revenue shortfall for the whole year is now reported by Bloomberg at around 1.65 lakh crores. The serious economic slowdown due to COVID-19 prompted the Central Government to increase taxes and cess on Fuel last night
Petrol is now up by Rs 10
Diesel is now up by Rs 13
This comes at a time when Brent Crude is Trading at $ 31 per barrel, down by 39% since end of February.
The Government realises that it will have to come up with a massive stimulus package for businesses and citizens apart from supporting State Governments. With businesses and personal finances in trouble, the Government’s revenues aren’t going to reach previous levels immediately after the end of the Lockdown. So it has lost no opportunity to shore up its revenues. No Doubt at all that this is PM Modi’s biggest challenge in the last 6 years.