Explaining GDP data: GST de-stocking not sole cause of slowdown

Expenditure side of GDP data shows rather than contracting, 'change in stocks' grew by 1.2% in Q1

Inventories grew by 1.2 per cent in the first quarter of 2017-18, countering claims that the slowdown in economic growth during the quarter was caused by de-stocking in anticipation of the rollout of the goods and service tax (GST) from July 1.

An economic revival in the second quarter was expected because stocks were likely to be restored to normal levels as the GST progressed, Chief Statistician of India TCA Anant had said. 

But the expenditure side of the GDP data shows rather than contracting, ‘change in stocks’ grew by 1.2 per cent in the first quarter. Change in stocks, which reflects inventory, has, however, been slowing down from 6.3 per cent in the third quarter of 2016-17 to 3.5 per cent in the fourth quarter and further to 1.2 per cent in April-June.  

Sequentially, the change in stocks has contracted by 3.8 per cent in April-June, after growing 11.3 per cent in January-March. It has fallen from Rs 76,862 crores in January-March to Rs 73,979 crore in April-June, a decline of a mere Rs 2,883 crores. 

Analysts said this trend was visible in other years as well and it would be difficult to pin this on the GST. “The dip in manufacturing is possibly attributed to a demand slowdown apart from destocking,” said Soumya Kanti Ghosh, group chief economic adviser, State Bank of India.

“De-stocking has not really shown up to the extent expected in the GDP numbers. It has not been that significant,” said Suvodeep Rakshit, economist at Kotak Institutional Equities.

The change in stocks included sectors such as agriculture, said Pronab Sen, former chief statistician of India. “The CSO has not provided a sector-wise change in stocks position. It is possible the decline in stocks of manufactured products has been offset by higher stocks of other sectors,” he added. 

Other economists, however, disagreed, claiming stocks largely comprised of manufactured products. 

The trade, hotels, transport and communications category has grown by 11.1 per cent in April-June, up from 6.5 per cent in January-March. “The increase is likely on account of faster growth in the communications and hotels categories, apart from destocking that affected the trading segment,” Ghosh said. 

“The number of mobile subscribers grew 14.2 per cent, year on year, while foreign tourists arrivals have grown 23.8 per cent,” he added.