India inc ticks, now for animal spirits

The spurt in direct tax collections this fiscal so far signals improved corporate performance from a year earlier. But let's give it a cautious welcome. Gross collections rose by 23.8% to ₹8.98 lakh crore till October 8 from last year. After refunds, direct taxes were up 16.3% to ₹7.45 lakh crore, crossing half the budget estimate for FY2023. Inflation remains high. High nominal GDP growth - 26.5% in the June quarter - boosted collections. Presumably, bank profitability improved with the rise in interest rates. The windfall profit tax on oil producers adds to GoI's kitty. Rupee depreciation is also likely to push up export proceeds, boosting the profitability of IT companies. But improved corporate performance must be supported by a revival in the corporate investment cycle to ensure economic recovery.

Globally, fears of a recession loom. If private investment remains low, it may imply lower depreciation. That, in turn, could propel the bottom-lines of companies, adding to the direct tax kitty. Gross fixed capital formation (GFCF) rose to 34.7% in Q1 FY2023 compared to 32.8% in the year-ago period, but only a bit above Q1 FY2020. RBI's capacity utilisation survey on the manufacturing sector, too, revealed a seasonal decline to 72.4% in Q1 FY2023 from 75.3% in the previous quarter. It also showed that manufacturing companies received higher new orders for the last four successive quarters.

ET Intelligence Group's latest estimates show that the aggregate revenue of the Nifty 50 firms during July-September is likely to grow in double digits for the seventh quarter in a row. A clear picture on investment and depreciation will be available by end-October in the semi-annual balance sheets of companies. Exceeding the revenue target will help GoI meet higher-than-budgeted food and fertiliser subsidies, and still rein in the fiscal deficit.