The bottomline of Indian companies improved significantly in FY21 due to the triple benefit of low interest cost, expenditure reduction and low taxes, according to State Bank of India’s economic research report “Ecowrap”.

The reduction in effective tax rate (ETR) in FY20, coupled with a prolonged low interest rate regime fuelled by the pandemic, seem to have been a blessing in disguise for India Inc during pandemic year, the report said.

Referring to the roller coaster ride in the corporate space in FY21 and FY22 so far, even as around 4,000 listed entities reported 5 per cent decline in top line in FY21, EBIDTA (earnings before interest depreciation, taxes and amortisation) and PAT (profit after tax) grew by 24 per cent and 105 per cent respectively over FY20, the report added. “Most importantly, 15 sectors have now reduced loan funds by around ₹2.09-lakh crore during the pandemic year FY21. “Sectors such as refineries, steel, fertilisers, textiles, mining, etc have reduced their loan funds in 6-64 per cent range in FY21,” said Saumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

Reduction in ETR

Ecowrap said the ETR for the 4,000 listed entities fell from 35 per cent in FY20 to 26 per cent in FY21 though actual tax paid increased by more than ₹50,000 crore to ₹1.90-lakh crore in FY21 from ₹1.40-lakh crore in FY20. Many sectors, including engineering, realty, automobiles, trading etc. had reported ETR reduction ranging from 1-24 per cent in FY21 compared to FY20, it added. “Despite this, tax collections have been impressive in FY22 with corporation tax revenue at record highs,” Ghosh said. He emphasised corporate tax collections have been the best in two decades.

SBI’s economic research department shows that the cut in taxes in FY20 has contributed 19 per cent to the top line of sample sectors during pandemic with sectors like cement, tyres and consumer durables showing significant contribution even in excess of 50 per cent.

Low interest rate helped

Ghosh said that an extended period of low interest rate have also helped companies in massive deleveraging and contributed, on an average, 5 per cent to the overall top line. Sectors like consumer durables, healthcare and cement have benefitted the most.

In terms of expenditure cut, the report assessed that the overall contribution to topline has been as much as 31 per cent with most companies finding new ways to navigate through the pandemic.

Sectors like apparel and refineries have cut cost by as much 107 per cent on an average. Expenditure has, however, climbed up in sectors like metals, agro chemicals, among others, reflecting the increase in input costs with a surge in global commodity prices.

The report said that employee costs have been cut on an average by 3 per cent in FY21.

“Interestingly, with robust direct tax collections, especially corporation tax, in Q1FY22, we believe that the gap between GVA (gross value added) and GDP (gross domestic product) will be large, as the GDP growth would be buoyed by the taxes,” Ghosh said.

With the RBI hinting at an extended period of accommodative policy, SBI’s report believes that this augurs well for better corporate results and hence robust tax collections. The department added this could begin a new investment cycle, the sooner the country is able to reach a critical vaccination mass.