Clear evidence that growth impulses in economy are strong

The latest data in regard to advance tax paid by companies convey more than a mere robust corporate performance.

Read in conjunction with the tax mop-up till November and the figures of industrial production index for October, they provide a corroboration of sorts that the economy will trace a high growth path in the second half of this year too.

Financials only reflect the ground level facts though it is commonly perceived that there is a dichotomy between the two.

First, what does the advance tax payout suggest? It conveys clearly that the lingering doubts about how  the manufacturing sector fares may be laid to rest — it is surely upward bound.

Second, this recovery would be broad-based, as companies across the spectrum — steel, automobiles, pharma, banking and software  — have forked out more by way of advance tax during this period compared with the year ago.

They include corporate entities like ICICI, HDFC, Tata Steel, Tata Motors, Bajaj Auto, Reliance Industries, Hindustan Unilever, Marico and TCS.

Since advance payments is directly correlated to the expectations of bottomlines, it stands to reason that, with minor exceptions, the corporate sector looks forward to a vastly improved show during 2010-11 in terms of profits and profitability as well as dividend to shareholders.

Mirroring this, the bourses too are in a cheerful mood, broadly speaking.

Other tell-tale evidence also points to an economy on the come-back trail. The advance tax outgo comes on top of a sharp increase in corporate tax collections during the April- November 2010 period; at Rs138,461 crore, they are up by 22.3% compared with the same period of 2009-10.

In indirect taxes, too, a remarkable buoyancy is seen, with the total revenue till November 2010 up by a whopping 42.3% at Rs207,756 crore, or nearly two-thirds of the budget estimate for 2010-11.

In this, the spurt in customs duties is of the order of 67% and stems, in part,  from higher imports of capital goods and machinery and equipment as well as critical raw materials — all vital inputs for giving a fillip to industrial growth in the period ahead.

That the domestic industry is doing well is indicated by the 34.4% jump in the collections by way of Union excise duties. These trends lend credence to the view that, both during October and November 2010, manufacturing sector has stepped up the physical volume of production, in continuation of the pattern in the first half.

The index of industrial production also confirms this. In October, the overall index surged 10.8%, with manufacturing index vaulting 11.3%, taking the respective growth rates to 10.3% and 11% during the first eight months of the current year.

In the first half of 2010-11, real GDP increase was a hefty 8.9%, which was fuelled mainly by a rise of 11.3% in manufacturing.

Limited data for the subsequent period, as highlighted above, also indicate the growth momentum will be maintained, if not bettered, in the second half of this year.

Economic forecasting may not be an exact science but it does not mean that financial data, read in tandem with physical data, rules out valid inferences. 

Advance corporate tax outgo, thus, has a significance that transcends the limited sphere it pertains to; it provides a clue to the working of the manufacturing segment, and correlated with other data, throws some light on macro economic performance.

At this point, we can be certain that the economic growth this fiscal will be 9%, with an upward bias.