"Repercussions of an early budget and the newly implemented Goods and Services Tax (GST) rates, receipts and rebates are likely to distort upcoming GDP readings...It's a good idea to focus on GVA (gross value added) growth over GDP (Gross Domestic Product) growth," it said in a note.
The GVA growth will accelerate to 6.2 per cent for the April-June period on a year-on-year basis, up from the 5.6 per cent in the preceding March quarter, which saw negative impact of demonetisation.
Explaining the lower GDP growth as against the GVA growth, it said a large subsidy outgo will likely depress the net indirect taxes (NIT) growth which will result in slower GDP.
Stating that GDP contains more information than the GVA, HSBC elaborated that it is GVA plus the net of indirect taxes (which is indirect taxes minus subsidies).
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Still, GVA is the preferred number to gauge the economic momentum because NIT is likely to be fraught with data issues, it said.
"This increase in subsidy payout could depress NIT, only to sharply reverse over the next few quarters. All else being equal, it could also lead to the GDP growth print coming in lower than the GVA growth print for the April-June quarter," it said.
Secondly, GST collections and rebates could distort GDP prints from the second quarter onward, it said, adding the GST rates regime could also distort upcoming GDP prints.
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