GST Data and Private Consumption

Source-This post on GST Data and Private Consumption has been created based on the article “Using GST as consumption proxy” published in the “Business Standard” on 4 June 2024.

UPSC Syllabus-GS Paper-3– Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context- The article highlights the strong performance of Goods and Services Tax (GST) collections in India, with net collections outpacing nominal GDP growth in the previous financial year (FY24). The highest-ever monthly GST collection of ₹2.1 trillion in April 2024 shows how GST data can provide insight about private consumption trends.

What is the significance of GST data in providing insights into private consumption trends?

1) GST is a consumption-based tax, accruing to the state where goods are consumed, rather than where they are produced. Thus, state-level GST data can indicate sub-national private consumption trends, which is beneficial because high-frequency data on private consumption is lacking in India.

2) Analyzing GST data from different states reveals consumption nuances and economic trends. This provides valuable information for both policymakers and businesses.

3) GST data can become a more real-time measure of consumption expenditure and provide data-led insights into the economy at both national and state levels.

4) GST data can yield valuable insights into consumption patterns, import contributions, and consumption of climate-sensitive items across states. This will help in enhancing understanding about the economy.

5) GST compensation cess data that is imposed on luxury and harmful goods can help in understanding the consumption trends associated with these products. For ex- Kerala had the smallest amount of compensation cess collected per person, while Chhattisgarh had the largest, mainly because of the state’s significant use of tobacco and coal.

What is the correlation between GST data and private consumption?

1) There is a strong positive correlation between per capita GST collections and per capita incomes across states, indicating that richer states have a higher propensity to consume.

2) There is a positive relationship between the share of urban population and per capita GST collections, implying that urbanization propels private consumption.

Question for practice

What is the significance of GST data in providing insights into private consumption trends?