Quickonomics: Consumption signals from state-level GST data

State-level Goods and Services Tax (GST)¹ data can be a useful gauge of consumption demand across states.

This is because GST, being a destination- or consumption-based tax, is received by a state in which the goods are consumed as opposed to a state in which these are produced. Thus, higher the consumption in a state, the bigger its GST collection.

Such an analysis is useful because:

• Private consumption is the biggest demand driver for the Indian economy and understanding how it stacks up across states is helpful for the corporate sector as well asfor policymakers. Demand-side gross domestic product (GDP) data for states is not published, hence state-wise GST data can throw light (and at a much higher frequency) on consumption patterns across states. A caveat - increase in state GST could also partly be due to wider or enhanced coverage and difficulty in tax evasion
• b) Even though most food items are exempt from GST and items such as alcoholic beverages and petroleum products are outside its purview (together having around 33% share in all-India private final consumption expenditure, or PFCE), GST still represents a healthy share in terms of coverage of goods and services, at ~67%², which makes it a reasonable proxy for consumption scenario across states.