Note ban impact over; firms adapting to GST: T C A Anant

'You will see the revenue figures will be higher than what we have seen so far', he added

Chief Statistician T C A Anant talks to Dilasha Seth & Indivjal Dhasmana on various aspects of gross domestic product data for the second quarter of the financial year. Edited excerpts:

You have said these GDP numbers will be revised upward when clarity comes on indirect tax collections. The Integrated GST (IGST) paid for earlier months will be used as credits for paying taxes. So, would GDP rather not get revised downward?

Returns for the quarter are still incomplete and in the process of being filed. Remember, government accounts are done on a cash basis; it is in the quarter in which things are received and paid. Except, what happens is that people are still paying taxes for the September quarter. So, what could happen is that receivables in that quarter might go up. What adjustment takes place to net payments in that quarter, whether these will be made in the September quarter or when the payment is actually made, we will have to see. This series being new, my expectation  and that of the revenue department is, when all figures are in, you will see the revenue figures will be higher than what we have seen so far.

Full refunds are yet to be issued for exports, besides input tax credit. When that portion increases, will we not see GDP growth narrow down closer to that of GVA (gross value added), as the indirect tax component might reduce?

What we don’t know yet is how many people have not yet paid their taxes. Remember, we have also waived penalties for late payment; therefore, people are still filing returns for the production and sales they made in that period. So, what will be the net picture is a matter of assumption. It is this uncertainty that we pointed out in the first place.  The general expectation, looking at the profile of filings, is that we expect revenue collections to be on the higher side than what we have seen so far.

When you see the GDP numbers, do you get a sense that the impact of demonetisation has petered and business has adjusted to GST (the goods and services tax)?

The impact of demonetisation is long over. There was a temporary shortage of cash due to it and that had been restored a long time earlier. I don't think that has been an issue for some  time. GST has a multiplicity of effects. There were anticipatory effects of GST which got manifested in the first quarter GDP data. Those anticipatory effects are over. So far as adapting by companies to GST is concerned, that is well on the road and  revealed by the fact that large numbers of companies have been filing GST returns regularly. Compliance is spreading to eligible businesses and companies. The process is not complete; that is why I said there is scope for revision here. But, it is a fairly rapid process. Lots of initial teething troubles have been addressed. People have been filing not only summary returns but detailed ones as well. 

You said restocking can’t be attributed to the rise in  manufacturing growth in Q2. What explains the rise?

My assessment is based on my reading of the advance filing of companies. When we had looked at the first quarter estimates, one reason for low value added was a very sharp reduction in stocks. We had also explained how it matched correctly with low value added in manufacturing and high value added in trade. 

Now, the company data that have been filed don’t seem to show a sharp improvement in the stock position. The figures on change in stock continue to be relatively low. I drew this conclusion —  second quarter production takes place ordinarily for meeting festive demand that begins immediately after this quarter. So, it is possible that companies were at this point not restoring their stock position but in fact producing for sale. It is possible that once the festive season completes, they might continue to carry the high production level a bit longer, to also restore their stock position to what they'd like to carry as normal inventory.

If that assessment is correct, you will see continuation of high valuation in production beyond the second and third quarters, partly on restocking, only to make up for withdrawal of stocks that took place in the first quarter. I don’t think they have been made up, as far as my reading of company accounts are concerned.

How does an Index of Industrial Production (IIP) growth of 2.2 per cent corroborate with manufacturing growth of 7 per cent in the same quarter? Is that essentially on account of difference in methodology?

In manufacturing, we calculate value added from company data for the corporate sector. For the non-corporate sector, we estimate value added from IIP data. Corporate value added was giving a relatively high growth and IIP-led growth was factored into the quasi corporate growth in the informal sector, which is somewhat lower in magnitude, and the average growth is therefore seven per cent.

Export growth was also muted at 1.2 per cent during Q2? Should that not reflect in manufacturing?

Not necessarily, as manufacturing takes place for both export and domestic sales. You have had many periods in the past where export was low but domestic production had been high. In fact,  a large part of Indian manufacturing is focused on domestic production.
 
Your assessment of investment activity in the economy?

Investment growth has picked up from the last quarter; to that sense, investment has picked up. It is also correlated to the capital goods data in IIP. So far as the investment scenario as a whole is concerned, we would like to see that these are much higher than currently. I'd like to see the capital formation growth rate higher than that of GDP. If it is 4.5 per cent, it should have been over 6.5 per cent to improve its share in GDP. That will take some time. 

Were investments from the private sector still lacklustre?

It is not possible to say at this stage. We do not estimate capital formation for public and private sectors separately at this stage. However, the analysis shows Union government expenditure linked to capital formation has been quite good. 

Why was services sector growth down in Q2, compared to Q1?

One of the segments, construction, was down. You can take construction in industry, as well as services. The other element is government-backed services. Here, the base effect kicked in. Last year at this point, there was implementation of pay revision for central government employees. Unlike in the past, almost all the pay commission recommendations were implemented in a single financial year. What we are seeing now is the normal trajectory of government expenditure. 

What about the segment comprising financial services and real estate?

Financial services are doing better, though credit growth still has room to improve.  Real estate is also on an improvement path, compared to the previous quarter, but there is still space for considerable improvement. It will strengthen as the segment adapts fully to the Real Estate Regulatory Authorities (under the new law) and the changed structural pattern in this segment. 

Why was agricultural growth so low at 1.7 per cent in Q2?

Entirely the base effect. Last year, you had good growth in agriculture (4.1 per cent); this had its impact in the second quarter of this year.