Howzat, Mr Jaitley! Your Number Spin Has Left You Trapped LBW

Arun Jaitley presented a rosy report card of demonetisation on 29 December. But the FM glossed over some key facts.

Union Finance Minister Arun Jaitley said on 29 December that the adverse impact of the note ban on the economy had been far less than what had been apprehended by experts. He said:

Of course, there would be areas which would be adversely impacted, but what was predicted by the critics has to have a rationale with revenue collection… Assessment can be unreal but revenue is real.

Offering numbers to support his claim, he said that in the April-November period, indirect tax collections went up by 26.2 percent.

While excise duty collection registered an increase of 43.5 percent, service tax revenue went up by 25.7 percent and custom duty earnings by 5.6 percent.

Impressive growth indeed given the steep decline apprehended in November post-demonetisation. Do these numbers indicate anything?

They don’t. And here's why:

1. Petroleum Conundrum

The unusual spike in excise duty collections is entirely owing to petroleum products. In the last financial year, excise duty earned from petroleum products constituted nearly 70 percent of the entire excise duty collection.

Since demonetisation has had marginal impact on the sale and consumption of petroleum products, it did not register any dip in November.

Therefore, if the government wants additional excise to prove robust manufacturing activity, it must isolate excise duty collection figures from duty on petroleum products to prove that to us.

2. Duty Structure Googly

There was a nearly 100 percent hike in excise duties on various petroleum products between 6 November 2015 to 30 January 2016. The unprecedented growth in excise duty collections through 2016 is also reflective of changes in the duty structure.

Comparing numbers for 2015-16 to 2016-17 therefore does not make any sense as rates were different in different months of these two financial years.

A fair comparison of excise duty collections can happen only from February 2017 onwards, if rates are not revised from now onwards.

3. Outdated Excise Duty Numbers

Excise duty is levied on goods produced and dispatched, and are normally paid in the first week of every month.

Since the demonetisation announcement was made in the second week, the number for November gives some indication of economic activities for the month of October. October, as we know, was a festive month that saw heightened consumer activity.

4. Service Tax Follows No Calendar

The payment of service tax does not follow a monthly calendar and the number given does not provide an indication of the state of the economy.

5. Fake Sales

Incidentally, The Economic Times had reported on 9 November:

The government is likely to see a steep rise in value added tax (VAT) and excise duty collections in the coming weeks, as many traders and retailers would try to show and convert their unaccounted cash into sales, according to tax experts.

The newspaper quoted one tax expert as saying that traders would show goods as sold, pay taxes and deposit the money in banks.

6. Demonetisation Stealing Monsoon Thunder

Jaitley said that the sowing of the rabi crop is 6.3 percent higher than last year. He, however, did not tell us that we had seen the first year of a normal monsoon after three drought years. Sowing acreage was therefore bound to increase.

Production too may inch up. But that is not the real concern of farmers. Farmers are faced with an unprecedented situation of farm produce prices crashing. They are unable to repay short-term crop loans, making them ineligible to secure fresh crop loans.

7. Advance Bookings to Incredible India

Another set of data offered by Jaitley is with regard to international tourist arrivals. People associated with the travel industry say that since most of such bookings are done well in advance, there was a marginal impact.

Fresh booking had been hit after reports of tourists having a tough time getting their foreign currency exchanged.