Tax Talks: GDP, GST data are critical for effective policies, but repeated revisions make it unreliable too

feb gst

The gross GST revenue performance is despite the GDP growth being only 4.4 percent in Q3 FY23-down from 6.3percent in the previous quarter. Base normalisation and contraction in the manufacturing sector’s output was also responsible for the growth slowdown.

Thus the manufacturing activity in February as per the seasonally adjusted Purchasing Managers Index (PMI) stood at 56.3. This was a four-month low but as has been noted, anything above the threshold of 50 is indicative of their being a growth momentum.

As per CMIE, there was also a healthy credit growth across sectors — retail segment by 20 percent, services by 19.6 percent and industry by 8.7 percent. And this was also evident in the performance of the services sector; the PMI for services increased to a 12 year high of 59.4 in February 2023 from 57.2 in the previous month. The RBI Consumer Confidence Survey pointed to improving consumer sentiment with non-essential spending also witnessing recovery.

A significant feature of the GST revenue as has been pointed out earlier is the increasing IGST component — more specifically of the IGST revenue generated through imports. India’s imports were higher by 22 percent in FY23 up to the period ending January. The trade deficit for the same period being USD 111.94 billion.On a year-on-year basis, there was a contraction recorded in several export intensive sectors-engineering goods, gems and jewellery and handicrafts.

And while looking at export data, we should not forget that there is always the possibility of exports being overvalued — meaning thereby that what is actually the value of export is much lesser than what is shown as the value to have been exported. The periodical reports from Global Financial Integrity (GFI) would suggest that there is substantial value gaps-in respect of India the Report suggests that in 2018 this could be to the extent of USD 38.9 billion.

GDP growth projections for this fiscal range from 5.5 percent (Moody’s) to 6.1 percent (IMF) to 7 percent (advance estimates).As per RBI, inflation is projected at 6.5 percent. As per the Ministry of Commerce, India’s overall exports are projected to grow at 17.33 percent.

The analysis above is based on data. Data is key for effective policy making. But as columnist Mythili Bhusnurmath has pointed out in one of her recent articles, data has become very shaky — resulting in difficulty in coming to any definite conclusions. The GDP estimates released on 28th February has along with the Second Advance Estimates of National Income for 2022-23 and quarterly GDP estimates for October-December 2022, revised numbers for 2021-22, 2020-21 and 2019-20 and for the first two quarters of this year. A total of an incredible five sets of revision have taken place.

The press release of the Ministry of Statistics & Programme Implementation very helpfully states that this may not be the last such revision. The note says that ‘Improved data coverage, actual performance of various indicators, actual tax collections and expenditure incurred on subsidies in the following months and revision in input data made by source agencies would have a bearing on subsequent revisions of these estimates.

Estimates are, therefore, likely to undergo revisions for the aforesaid causes in due course, as per the release calendar. Users should take these into consideration while interpreting the figures. Bhusnurmath, quoting former RBI Governor Y V Reddy, states ‘In India, not only the future but even the past is uncertain!’

The same tendency to revise data has also been noticed also in respect of trade. In January 2023 the Ministry of Commerce revised the import data for the first eight months of 2022-23 — a difference of USD 2 billion being noticed in each of the months. Though the import bill had increased the overall trade deficit for the same period, it was said to have reduced by USD 10 billion —suggesting that there was a similar revision also of export figures.

Data credibility is critical. While data at the time of its release does tend to be provisional and gets finalised in the following month, the tendency to reopen numbers which have been finalised with no explanation is troubling. Where data is perceived to be unreliable, analysts lose faith in them and rely upon intuition — nothing can be worse for effective policy making.

, was Chairman, Central Board of Indirect Taxes & Customs. The views expressed are those of the author.

Read his previous articles here