Explained: How higher tax collection can help reduce either fuel excise or borrowing from bond markets

The government may find itself with some extra cash in hand at the end of FY21. The latest revenue and expenditure figures indicate that for the fiscal year ending in March 2021, the government’s tax revenue may exceed the RE (revised estimates) while the expenditure may fall short of the RE.

The government needs to collect Rs 3.85 lakh crore in the months of February and March to meet its RE tax assumption of Rs 19 lakh crore. Given that last year’s tax collection during the period of Feb-Mar, last year was Rs 4.79 lakh crore, it is evident that even if the revenue collection for the same period this year is flat, the total will exceed by about Rs 1 lakh crore.

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Expenditure meanwhile needs to increase a whopping 20 percent, year-on-year, in these last two months to meet the RE target, which appears unlikely as April-Jan expenditure was up 11 percent.

Latha Venkatesh suggests that this puts the government in a comfortable position to either cancel the extra Rs 80,000 crore of market borrowing or cut excise duties on fuel and bring down inflation.