While I have discussed the issues in various articles over a period of time, I would like to bring forth a couple of recent developments that might hold the key.
1st is excise duty collection data. Till August, the Apr-Aug’09 cumulative collection figure was down by about 25%. Agreed, as part of the stimulus package, the government announced reduction in duties for various commodities and this is also reflected their budgted collection of excise duty for 2009-10, which was assumed to be lower than by about 1.75% as compared to the previous year. Nevertheless, the surge in August collection (around 23%) as compared to July’09 was a harbinger of hope. This was in line with the IIP growth of above 10%. However, the latest data for the month of September dashed the hope. The September number was down by about 5% as compared to August’09 and the Apr-Sep’09 collection is now down by around 21%. This means that the excise collection has to grow by close to 21% every month if we are to match the targeted collection. I have maintained earlier that the recent surge in manufacturing activity had a lot to do with increased inventory creation keeping in mind the festive period. Whether this is sustainable is a question. And, as the September number shows, things are not as rosy as one is made to believe.
Same is the issue with corporate tax collection. Corporate tax accounts for about 35% of total tax collection and the government expects the corporate tax revenue to jump by 15.64% in this fiscal. However, for the period Apr-Aug’09, corporate tax has increased by a mere 2.47%. This means that for the next seven month, corporate tax has to increase by 20.84% month-on-month to achieve the target. Again a very tall order. Clearly, the corporate sector, overall, is not growing as much.
And, this brings me to the 2nd point. Like the first quarter of this fiscal year, a study by ET of about 400 non-finance companies show that while their net profit grew by as much as 22%, their net sales grew by only 4%. Clearly such profit growth (based as it is on cost control lower wage, input and interest cost) is not sustainable. Sustainable corporate profit growth requires growth in revenue. Stagnation of revenues indicate slowing down of demand.
All of these continue to mean that the problems are ‘far from being over and hence I expect no change in the government’s accommodative monetary policy stance tomorrow.