Data in disguise: Interpretation requires a discerning approach

livemint.com:

WPI inflation for the quarter, we calculate that the services deflator will likely ease by 1.7ppt in Q1. Of this, 0.5ppt will likely be real, mirroring the fall in the CPI services inflation, while 1.2ppt would be statistical. An exaggeration of services growth by 1.2ppt would mean an exaggeration in overall GDP growth by 0.67ppt.

Our estimates suggest that the two deflator problems together could exaggerate GDP growth by 1ppt in the first quarter of fiscal year 2023-24. Government tax collection—mirroring GDP growth?: Government tax collection data, which is released at the end of every month, is usually assumed to be a good indicator of overall economic growth. But we find that may not always be the case.

Instead, if interpreted properly, it can tell us more about different sector performance. Take the June data, for instance. Headline tax collection grew at 11% year-on-year.

But what’s more interesting is the granular details: 22% growth in indirect tax revenues (primarily GST), 8% growth in income tax revenues, but a 0.4% year-on-year fall in corporate tax revenues. What could this wide dispersion in data possibly mean? We believe strong GST tax revenue data is not always a perfect indicator of overall GDP growth. After all, many sectors are still exempt from the GST regime, and different tax rates apply to different sectors.

Instead, GST revenues can impart other useful information. For instance, in certain situations, higher GST revenues can be an indicator of how top-of-the-pyramid consumers are faring, since luxury goods tend to be more expensive and attract higher tax rates. Similarly, higher income tax revenues can be driven by rising incomes earned by formal sector workers, who end up paying income tax.