Q2 GDP data at 5.30 pm today: 3 things to watch out for

Has the Indian economy turned the corner after the disruptions caused by Goods and Services Tax (GST)? Or do the effects of GST implementation continue to hold sway over factory output and inventories? The national income statistics will have the answers.

The Central Statistics Office (CSO) will release gross domestic product (GDP) growth estimates for the second quarter (July-September) of 2017-18 at 5.30 pm today.

The Indian economy grew 5.7 percent in April-June, the slowest in 13 quarters. It was sharply lower than last year’s 7.9 percent expansion in the same quarter as also the previous quarter’s 6.1 percent growth, reeling under the stock management shock caused ahead of GST’s rollout.

Here are three things to watch out for from today’s national income data:

#Impact of GST restocking

India witnessed one of the biggest one-off sale season ahead of the rollout of GST from July 1. A mid-year switchover to GST had prompted anxious shops and companies to de-stock and clear up the inventory pile ahead of the new system’s kick off.

The scale down in production could have a bearing on the overall GDP growth numbers in April-June.

The government has been claiming the slowdown was a one-off affair, given the large scale inventory clearance before GST’s rollout. This may well be the case, with many companies building inventories from August, factoring in price and cost changes brought about by GST.

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).

#Tax accounting change

The July-September 2017 GDP data will be the first set of data giving out GDP estimates based on new GST tax estimates. With GST kicking in from July 1, and tax return filing still not smoothening out, official statisticians may have to rely on approximations to measure changes in India’s GDP in the absence of past tax collection data on a comparable scale.

Inter-period tax collections are critical for GDP calculations. GDP represents the total value of goods and services produced in the country. Gross Value Added (GVA), is GDP minus taxes. GVA is a more accurate guide to calculate changes in the total value of goods and services produced.

Since GST has subsumed a string of local and central levies such as value added tax, excise and service tax into a single tax, and considering erratic GST tax returns in July-September, analysts will be keenly looking for cues on the government’s own estimates about tax collections in this quarter. Official, but unannounced, estimates of GST tax collections could well be hiding in the second quarter GDP estimates.

#Nominal versus Real GDP

GST’s inflationary impact is still unknown. CSO gives out both the “real” or inflation-adjusted GDP figures as well as the nominal or current price numbers.

Analysts will also be keenly watching the CSO’s nominal GDP growth rate estimates for July-September for cues on GST’s inflationary impact. Real or inflation-adjusted GDP is usually calculated by subtracting the growth in actual or nominal GDP by the inflation rate or “price deflators.”

A flat or moderate growth in real GDP could also mean that GST may have had pushed up overall prices in the economy. On other hand, a higher real GDP growth could well be an indicator about GST’s minimal impact on prices of goods and services.