The single-digit growth of 7.7 per cent in goods and services tax (GST) collection in June points to the heatwave impact on consumption in the month of May coupled with a base year effect, say analysts.
The gross GST collection for June, which reflects the transactions made in May, stood at Rs 1.74 trillion, Business Standard reported on Monday. This year-on-year growth was notably less than the 12.4 per cent and 10 per cent increases recorded in April and May, respectively.
Analysts say that while this is not a slowdown, it points to a moderation in consumption, which has most likely been impacted by the severe heatwave conditions that prevailed in the country in the month of May.
“One of the possible reasons for the moderation in GST growth is the temporary impact of the heatwave and elections on activity in some sectors. Additionally, the base effect is a likely contributor to the slowdown in growth of GST collections,” says Aditi Nayar, chief economist, ICRA.
“It is a sign of the times we are living in, where even 7.7 per cent seems like a slowdown. There was some unexpected weather in the summer months, where it was a lot hotter than it should have been. This impacts consumption to a large extent, where people don’t step out of their homes,” says Anand Ramanathan, partner, consumer products and retail sector leader, Deloitte India.
FMCG companies are likely to report a muted June quarter due to heatwave conditions and a continuing effect of high food inflation.
“It is still a market that has been impacted by inflation. To that extent, there is some tendency to postpone discretionary purchases,” Suresh Narayanan, chairman and managing director, Nestle India, had said at a media roundtable after announcing the company’s March quarter results.
He had further said that high temperatures are impacting out-of-home consumption.
“Consumption has largely remained flat in the past few months as people continue to shop only as per need. This is because consumers are still tackling inflation, while income levels have also not gone up dramatically. Additionally, a large number of consumers have made large ticket discretionary purchases on an EMI basis and are now paying off those EMIs,” Kumar Rajagopalan, chief executive officer at the Retailers Association of India, told Business Standard.
Market research firm Kantar too in May this year had said that it expects growth to be muted for another quarter at least, led primarily by urban slowdown.
“We are also starting to see some slowdown in the premium segment as affluent households are not spending as much. At the same time, spending from middle-income households is just taking off now. All these factors are contributing to a moderation in consumption,” adds Ramanathan.
The hospitality sector, too, felt the impact of the heatwave and the general elections in the month of May. According to hospitality consultancy firm HVS Anarock, the nationwide hotel occupancy rates remained stable in May 2024, despite an increase in air traffic.
(With inputs from Shrimi Choudhary)
First Published: Jul 02 2024 | 8:32 PM IST
