Concerns of Indian manufacturers over the negative impact of the goods and services tax (GST) are far from over. The bounce seen in manufacturing output and new orders, aided by restocking ahead of the festive season in September, has waned.
The Nikkei Purchasing Managers’ Index (PMI), a seasonally adjusted monthly survey of private sector activity, showed that manufacturing PMI fell to 50.3 last month from September’s 51.2. A reading above 50 indicates economic expansion from the previous month, while one below 50 points to contraction.
Even though the manufacturing PMI remained above the expansion threshold for the third consecutive month in October, it was only marginally in positive territory. The deceleration suggests that manufacturing activity has not recovered from disruption caused by GST.
Ambiguity over the new tax regime weighed on demand conditions, consequently hampering new business orders. After expanding for the previous two months, the New Business Orders Index slipped into the contraction zone at 49.9 in October.
Commenting on the Indian Manufacturing PMI survey data, Aashna Dodhia, economist at IHS Markit and author of the report, said, “India’s manufacturing companies struggled somewhat as the recent recovery enjoyed by the sector lost impetus in October. Disappointingly, manufacturing production rose at the weakest pace in the current sequence of growth. Inflows of new orders stagnated as the negative effects arising from the implementation of GST continued to dampen demand levels."
As a result, business confidence among manufacturers, which had recovered in September, faded. The Future Output Index eased to 57.5— the weakest since February. “Optimism was rooted in projected benefits of GST materializing over the next 12 months. However, some firms expressed concerns over negative GST effects," added Dodhia.
Meanwhile, the deadline to file GST returns for July was extended since many could not upload information given the technical glitches with the GST Network. Businesses will be able to claim timely credit depending on the accuracy and completeness of data. Failing that, the pressure on their working capital is likely to remain.