Is economic growth slowing down if average daily GST collection is at new high? This is what data says

There was a lot of outrage recently over two different issues. First was a reduction in monthly GST collection in February 2019 and second was an aspersion over economic growth data. Both these aspersions raised the question of the veracity of economic growth and “vikas” claimed by Prime Minister Narendra Modi. All concerns and aspersions raised may not be fully addressed and some of those concerns on economic growth could possibly be fair and relevant. However, we need a detailed discussion on average daily GST collection data to understand one dimension of economic growth and verify whether the economy is on the right track. [caption id=“attachment_4799391” align=“alignleft” width=“380”] Representational image. News18.[/caption] Indirect tax collection is a direct indicator of economic activity and a tangible measure of growth. Tax collection data also presents a real understanding of how nominal the economy has grown. Tax collection is a direct reflection of an increase in business activity – be it investment or consumption. On the investment part, with an increase in the purchase of capital goods, GST collection is positively impacted. The largest contributor to economic growth is increase in consumption. This indicates that people are buying more goods and services for consumption, and direct impact is seen in the consumer goods sector. It is obvious that the increase in sales of consumer goods will have a directly proportionate impact in GST collection. In the wake of this, it is important to undertake an analytical review of the GST collection data. February 2019 data highlights that the average GST collection touched its new high of Rs 3,473 crores per day. The previous high was achieved in April 2018, when the government clocked an average GST collection of Rs 3,449 crores per day. It is equally important to note that the government earned its record highest monthly GST collection in April 2018 at Rs 1,03,459 crores. The Chart on GST Collection Data presented below provides a broad picture of the same.

Here if we observe closely GST collection is not steady and has its own peaks and troughs. The February 2019 data is important, especially compared to data of April 2018. The reason is between April to December 2018, GST Council took series of decisions to reduce tax rates on more than 68 goods and services, adding 15 services in the exempt list, and postponing implementation of sugar cess. A summary of the same is presented in Table on Rate Cut decisions in GST Council Meetings presented hereunder. Table: Rate Cut decisions in GST Council Meetings

Source: GST Council, Media Reports This means that compared to March 2018, GST collected in January 2019 should have gone down due to a reduction in tax rates. However, this is not the case and we have witnessed an increase in tax collection. This implies that the overall value of the business has increased. This is further corroborated in BloombergQuint opinion that overall improvement in the economy and increase in consumption was one of the reasons for the improvement in FMCG (Fast Moving Consumer Goods) sector. Of course, reduction in GST rates also has an impact on demand, because most of the goods have a price-sensitive demand. As a result reduction in prices causes an increase in demand and consumption. So the question arises, how can there be an increase in GST Collection without an improvement in the economy? Increase in consumption is not possible without improvement in household income. This would also mean that there could be some employment. Without an increase in employment, how can household income and consumption improve? While many “experts” and “economists” have harped on NSSO data to highlight on lack of job growth, they need to analyse and explain how there is an increase in consumption without an increase in income which is directly related to employment. NSSO data has always been mired with many controversies. In The Economic Times news report dated 6 May, 2018, advisor to the finance ministry during Atal Bihari Vajpayee’s government, Mohan Guruswamy raised concerns over the quality of data. Job and employment data does not only have economic implications, but it also has political implications. In an environment mired with high pitch politicisation of data by both the ruling party and opposition, the economic part is totally ignored. The data needs to capture a lot of factors to make data more credible. (The writer is a Chartered Accountant & Financial Consultant and author of “Diagnosing GST for Doctors” published by CNBC Books18)