Heatwave grip on May consumption, base-year effect cool GST growth

The single-digit growth of 7.7 per cent in goods and services tax (GST) collections in June points to the impact of the May heatwave on consumption, coupled with a base year effect, according to analysts.

The gross GST collection for June, reflecting transactions made in May, stood at Rs 1.74 trillion, Business Standard reported on Monday. This year-on-year growth was notably less than the 12.4 per cent and 10 per cent increases recorded in April and May, respectively.

Analysts suggest that while this does not signify a slowdown, it indicates a moderation in consumption, likely influenced by severe heatwave conditions prevailing in the country during May.

“One possible reason for the moderation in GST growth is the temporary impact of the heatwave and elections on activity in some sectors. Additionally, the base effect likely contributes to the slowdown in GST collection growth,” said Aditi Nayar, chief economist at ICRA.

“It is a sign of the times we live in, where even 7.7 per cent appears to signal a slowdown. Unexpected weather in the summer months, with higher temperatures than usual, has impacted consumption, keeping people indoors,” said Anand Ramanathan, partner and leader (consumer products and retail sector) at Deloitte India.

Fast-moving consumer goods companies are likely to report a subdued April-June quarter due to heatwave conditions and the continuing effects of high food inflation.

“The market continues to be impacted by inflation. Consequently, there’s a tendency to defer discretionary purchases,” observed Suresh Narayanan, chairman and managing director of Nestlé India, during a media round-table after announcing the company’s January-March quarter results.

He further said that high temperatures are affecting out-of-home consumption.

“Consumption has largely remained flat in recent months as consumers continue to shop only as necessary, grappling with inflation while income levels have not seen dramatic increases. Moreover, many consumers made large-ticket discretionary purchases on an equated monthly instalment (EMI) basis and are now repaying those EMIs,” said Kumar Rajagopalan, chief executive officer of the Retailers Association of India.

Market research firm Kantar also said in May this year that it expects growth to remain muted for at least another quarter, primarily due to urban slowdown.

“We are also beginning to see a slowdown in the premium segment, as affluent households are spending less. At the same time, spending from middle-income households is just beginning to pick up. All these factors contribute to a moderation in consumption,” added Ramanathan.

The hospitality sector also felt the impact of the May heatwave and general elections.

According to hospitality consultancy firm HVS Anarock, nationwide hotel occupancy rates remained stable in May 2024 despite increased air traffic.

With inputs from Shrimi Choudhary