Quarterly report: GST impact on Indian Economy

The Hindu, note ban did give a blow to consumption goods and services. The consumer-oriented sectors also saw a sharp dip in sales in the quarter of October-December 2016. But the report also suggested that some sectors recovered quickly, while some have seen a higher growth as compared to the previous year.

Sectors-wise aggregate sales growth affected during Demonetisation

1. Fast and Moving Consumer Goods (FMCG) sales slashed from 6.5% to 2.9% in the demonetisation quarter.
2. Automobile industry saw a declined sales growth rate that went from 13.2% to 4.2%
3. Sales growth of retailers slumped from 31% to 3.5% at the time of note ban

But these sectors bounced back quickly from note ban.

Sector-wise aggregate sales growth after Demonetisation

1. Fast and Moving Consumer Goods (FMCG): FMCG saw increased growth rate to 9.6% in January 2017 – March 2017 quarter itself.
2. Sales growth of consumer goods increased to 13%, which further accelerated to 20% and 16% in subsequent quarters.

GST impact on the Indian economy vary from industry to industry and the same happened with both consumer goods and consumer services.

Effect on Consumer Services

Consumer services hit harder than consumer goods in the quarter demonetization happened, according to The Hindu Reports.

Sector-wise aggregate sales growth affected during Demonetisation

1. Telecom services sales decreases from 7.1% to 1.7%.
2. Entertainment industry which includes multiplexes, cable TV saw sales growth slashed from 14% to 7%
3. Media firms such as television channels, newspaper, etc., fell sharply from 9.2% to 1.2%

The above figures raise a very interesting question: Why were consumer services hit harder than consumer goods in the Demonetisation period?

The answer could lie in how GST tax is structured in India. By default, GST allows consumer goods to fit into lower slabs as the Tax reduces the indirect tax burden on consumer goods. This is not the case in consumer service. Therefore, all consumer goods companies are using the savings they made through GST to give extra offers and discounts to bring back its customers. On the other hand, service providers are in disadvantage as high tax has slowed their demand.