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Growth in Q2 could be higher as GST revenues still pouring in

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Growth in Q2 could be higher as GST revenues still pouring in
Chief statistician TCA Anant on Thursday said India’s economic growth in the July-September quarter could be higher than 6.3% as indirect taxes are still being collected on account of the goods and services tax GST) which was rolled out on July 1.
“It is likely that when revised estimates are prepared, indirect tax collections for this period may actually be higher than what we have reported,” Anant said at a press conference while admitting that the GST introduced a “certain level of statistical challenge” in compiling the growth numbers.
India’s growth as measured by the gross domestic product (GDP) was 6.3% in the second quarter, up from 5.7% in the previous quarter which according to Anant “shows a significant trend reversal in growth rates, indicating it is returning to more normal levels”.
He said manufacturing has shown a revival and capital goods production has picked up but construction continues to be slow but is expected to increase. Agriculture sector performance, he said, was held up because of the non-crop segment. Manufacturing grew 7% while agriculture growth was 1.7%, down from 2.3% in the trailing quarter.
GST has consolidated central and local taxes including value added tax, excise and service tax into a single levy. According to Anant, GDP could also be an underestimation on account of sales tax collection as many proxies were used to calculate it but the higher mop up could reflect in the revised growth data.
INVENTORY PILE UP
Anant said though there was no impact of inventory pile up on the gross value addition (GVA) account of GST rollout in the second quarter, the ripples can be felt in the third quarter. “It’s possible that anticipating the need for the festive season, most of the production went into the sale and inventory restocking may happen later…inventory accumulation effect may persist in the third quarter as well,” he explained.
DEMONETISATION
Commenting on the demonetisation drive last year and its impact on India’s growth, Anant said the move will be very hard to read from GDP numbers. He explained that normal trading practices and a lot of trade in India, particularly in the informal sector, is based on relationship-based trading due to which cash transactions can also be substituted with informal cred.“My suspicion is that a lot of the claims of the impact of demonetisation in agriculture simply does not account for the presence of such relationships in the sector,” he said.
The Economic Times, New Delhi, 1st November 2017

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