Data showed that the GST-induced supply shock may have eased considerably, helping a rebound in the broader economy.
The Indian economy grew 6.3 percent in July-September, recovering from a three-year low growth slump of 5.7 percent in April-June, as companies scaled up production and restocked supplies after goods and services tax (GST) kicked in from July 1.
Data released on Thursday by the Central Statistics Office (CSO) showed that the GST-induced supply shock may have eased considerably, helping a rebound in the broader economy.
Companies and traders had emptied out inventories to carry over as little old stock as possible into July, triggering an unexpected mid-year pre-GST “sale” season on many products at heavy price markdowns. This large scale inventory clearance had caused an economy-wide slowdown, pulling down overall growth to a 13-quarter low of 5.7 percent.
Gross value added (GVA), which is GDP minus taxes, grew 6.1 percent, mirroring greater production activity in factories, according to data released by Central Statistics Office (CSO). GVA growth had significantly fallen in the last few quarters, slipping to 5.6 percent in April-June.
The finance ministry in a statement said that the economy now seems to have weathered the ‘transitional challenges’ experienced earlier in the year and is now 'poised for a durable recovery going forward'.
GDP growth may have raced faster in July-September, but for uncertain indirect tax collections caused by teething procedural problems and technical glitches in GST tax returns.
Chief Statistician TCA Anant said that introduction of GST in GDP calculation posed a ‘statistical challenge’ for the CSO.
“In a normal year businesses are conversant with their tax structure and liability…most businesses know their liability and pay in time. So the collection reflects what is collected during a quarter. Introduction of GST there is uncertainty faced by number of taxpayers in computing tax liability,” Anant said.
“Tax payment due in a particular period was not being paid on time…tax data for relevant period is being updated even today. Tax collection for July-September cannot slated to be complete. This created a challenge for us”, he said.Anant, however, hinted at a higher indirect tax collection after completing
the GDP final estimates.
Despite the statistical challenges, certain sectors such as manufacturing, electricity, gas, water supply, trade, showed good growth.
The manufacturing sector grew 7 percent during the quarter-ended September from a 7.7 percent growth in the same period last year and 1.2 percent in April-June.
Consumption demand in both urban (vehicle sales, consumer credit) and rural (two-wheeler, tractor sales) areas has improved, as have indicators of private investment demand (railway traffic, capital goods production). Export volumes have also risen 8.4 percent in July-September (from 4.6 percent in April-June).
The revival has also been aided by a sharp rebound in mining output, a favourable base effect and supportive commodity prices. The mining sector grew 5.5 percent in July-September from (-) 0.7 percent in April-June. The contraction recorded by this sector last year and the previous quarter had weighed upon the overall GVA growth in those quarters.“Another encouraging trend from production side, gross value added (GVA), is trend of core-GVA growth. Core GVA growth, which declined to 3.8% in January-March (2016-17) has improved to 6.8% in July-September (2017-18) (highest in last five quarters). Second half of 2017-18 will be better than first half mainly due to base effect and continuation of mild recovery. However, it will be too early to term this as a full blown investment or economic recovery,” Devendra Kumar Pant, Chief
Economist, India Ratings & Research said.
The real estate sector, however, continued to remain subdued, amid lingering effects of demonetisation, and disruptions caused by GST and a new regulatory regime.
While private final consumption expenditure (PFCE) grew at 6.5 percent, lowest in last eight quarters, gross fixed capital formation (GFCF) increased to 4.7 percent from 1.6 percent in the previous quarter.
“The mild decline in growth of private final consumption expenditure in July-September (2017-18)is in line with the upfronting of consumption to April-June (2017-18), to take advantage of discounts being offered prior to the introduction of the GST,” Principal Economist at ICRA Aditi Nayar said.
The national income data showed GVA in the private corporate sector, which accounts for more than 70 percent in the manufacturing sector, grew 11 percent at current prices July-September.
The growth in quasi - corporate and unorganized segment (which includes individual proprietorships and partnerships and khadi and village industries has a share of around 20 percent in the manufacturing sector) has been estimated using IIP of manufacturing. IIP manufacturing registered growth rate of 2.2 percent during July-September of 2017-18 as compared to growth of 5.5 percent in the second quarter if the previous year.Farm sector output grew 1.7 percent in July-September from 4.1 percent in the same quarter of 2016-17 and 2.3 percent in April-June. The subdued farm sector output is also partly because of unfavourable base effect caused by a record high output in July-September 2017.