India witnesses significant corporate growth with low-interest cost, tax collections: SBI Ecowrap

It has been a roller coaster ride in the corporate space in the fiscal year 2021 and fiscal year 2022. Even as around 4,000 listed entities for FY21 reported a 5% decline in the top line earnings before interest, taxes, depreciation, and amortization (Ebitda) and profit after tax (PAT) grew by 24% and 105%, respectively, over FY20. The 15 sectors have now reduced loan funds by around Rs 2.09 lakh crore during the pandemic year FY21. Sectors such as refineries, steel, fertilisers, textiles, mining, etc. have reduced their loan funds in the range of 6% to 64% in FY21.

According to SBI Ecowrap, the reduction in the effective tax rate (ETR) in FY20 is coupled with a prolonged period of low-interest rate regime fuelled by the pandemic seems to have been a blessing in disguise for Indian companies. The effective tax rate for the said listed entities declined from 35% in FY20 to 26% in FY21, though actual tax paid increased by more than Rs 50,000 crore. Many sectors including engineering, realty, automobiles, trading, etc. had reported effective tax rate reduction ranging from 1%-24% in FY21 as compared to FY20.

Impressive tax collections

Despite this, tax collections have been impressive in FY22 with corporation tax revenue at record highs. SBI report shows that cut in taxes in FY20 has contributed 19% to the top line of sample sectors during the pandemic with sectors like cement, tyres, and consumer durables showing significant contribution even in excess of 50%.

An extended period of low-interest rate has also helped companies in massive deleveraging and contributed on an average of 5% to the overall top line. Sectors like consumer durables, healthcare and cement have benefitted the most. In terms of expenditure reduction, the overall contribution on top-line has been as much as 31% with most companies finding out new ways to navigate through the pandemic. Sectors like apparel and refineries have cut costs by as much as 107% on average. Expenditure has, however, climbed up in sectors like metals, agrochemicals among others reflecting the increase in input costs with a surge in global commodity prices. Employee costs have been cut on an average by 3% in FY21. The maximum cut in employee costs have been in sectors facing the consumers.

With robust direct tax collections, especially corporation tax, in Q1FY22 the gap between GVA and GDP will be large as the GDP growth in Q1 FY22 would be buoyed by the taxes.