If one looks at the trend in economic growth, it is seen that gross value added in the economy has been slowing down with 7.9% in 2015-16, 6.6% in 2016-17 and just 5.6% in Q1 of 2017-18. On the same lines, industrial capacity utilization as well as industrial production has been slipping. Not only this, fiscal deficit and interest rates have also been declining. While all this was happening, demonetization and GST came along which added to disruption of economy.
Post demonetization in 2016 which resulted in return of 99 percent of the banned currency notes, Indian GDP growth has recorded a three year low @ 5.7% in first quarter of financial year 2017-16. Apart from demonetization, it is understood that uncertainty over GST roll out in Q1 and related de-stocking, holding back plans by manufacturers and wait & watch policy adopted by large consuming masses, it has so happened. During the same period in financial year 2016-17, GDP growth was 7.9%. This is due to industrial performance.
GST has just been rolled out. While businesses are finding it difficult to cope with it for now, it is expected that things would streamline in next few months and the present temporary disruption, both in demand as well as systemic utilities will be eventually sorted out.
Post GST, what will be the trend? It is too early to predict or comment on Q2 performance but if recent indirect tax collection for July 2017 (first month of GST) are any indications, the figure should be much higher than 5.9%. Tax collection alone cannot indicate economic growth and as such Government should also not be happy with increased tax collection. However, it would be wrong to say that it may be a trend, as just one month tax figures can not be said to setting up of trend. Sales in current Q2 would be higher owing to dealers and manufactures being compelled to clear old stocks as on 30th June, 2017, including various sales schemes used.
Government should make all out efforts to ensure flexible and easy GST compliances (which presently is not) and also ensure that we do not land up in a pool of confusions and mess-up getting created by too frequent changes or amendments in tax procedures which only indicates bad foresight and planning. This is important as we need to allow businesses to do business rather than being busy with mere compliances. Today compliances are taking a toll on everything else.
The benefits of GST in terms of lower cost and input tax credit will start get translating in next 1-2 months, besides the transitional issues which may not be there after next quarter on wards.
Hoping that everything will be better- GST compliances, industrial output, consumption and of course, tax Governance.