Indian economy: Present imperfect, future cautiously optimistic

The GDP (Gross Domestic Product) growth in the first quarter (April to June) of this fiscal year 2016-17 came in at 7.1 percent annually, much lower than 7.9 percent clocked in the previous quarter (January to March) and also lower than 7.5 percent during the same period last year. There was not much gloom-and- doom in the market as growth still continued to chug comfortably at above 7 and India maintained its claim as the fastest growing major economy in the world ahead of China. While most economists focused on the decelerating real growth number, the Economic Advisor to the Ministry of Finance, Arvind Subramanian, highlighted the accelerating nominal growth number.

According to him, the economy is definitely on the upswing as nominal GVA (Gross Value Added) was at seven-quarter high and almost at double-digits (9.9 percent). This calls for a closer look at the latest growth number.

The surprise element in the growth numbers was the real GDP growth at 7.1 coming in below GVA growth of 7.3 percent – a fall of 0.2 percentage points (ppt) after growing 0.5 ppt above in last quarter.

We know that GDP is equal to GVA plus Net Indirect Taxes (where NIT = Indirect Taxes minus Subsidies). So, the numbers are clearly indicating that the problem lies with the Net Indirect Taxes. In other words, Indirect taxes must have slowed and Subsidies increased. This is corroborated by the monthly budget numbers of Controller General of Accounts which show that the excise, customs and service tax collection in the first quarter FY 2016-17 (April-June’16) slowed to 60.5, 17.8 and 28.5 percent annually from 104, 22 and 14.2 percent during the same quarter last year. Additionally, the CSO press release stated that the growth in subsidy payout increased to 53 percent as against a contraction of 26 percent same time last year.

Source – https://timesofindia.indiatimes.com/blogs/voices/indian-economy-present-imperfect-future-cautiously-optimistic/

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