Does enhanced GST collection point to economic recovery?

Centre revised its Sept quarter GDP estimate to a 10.7% contraction from a 12.5% decline earlier

Even as the GST collections in October rose by 10% year-on-year and look promising, the taxes are paid both by wholesalers and retailers. But, there is a possibility that the goods have been purchased by wholesalers, but haven’t been sent to retailers, according to a State Bank of India research report.

Hence, the extent of recovery can only be gauged after looking at the inventory figures, when the GDP data is released.

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The central government is expected to release the July-September economic growth numbers next Friday.

It, however, revised its September quarter GDP estimate to a 10.7% contraction from a 12.5% decline earlier based on the performance of 41 high-frequency indicators that it tracked.

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The report authored by SBI group chief economist Soumya Kanti Ghosh said sectors like, electricity, gas, water supply and other utility services as financing, insurance, real estate and public administration, defence and other Services will reverse their contraction in April-June quarter to a positive growth in July-September.

Agriculture will keep its momentum of positive growth in the quarter under review, it said.

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The Covid-19 outbreak impacted those activities where direct human contact is inevitable. This includes services such as tourism and hotels and trading in unorganised sector. Thus a sustainable recovery will require large-scale immunisation of population so that consumer confidence picks up, the author said.

The report said there was no doubt that the country's economy had suffered and the scarring still remained. The Micro, Small and Medium Enterprises (MSME) sector borne the brunt of the Covid-19 pandemic and the Export Promotion Capital Goods (ECLGS) scheme was a shot in the arm.