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Business News/ Markets / Mark To Market/  Flat  GST revenues put improved manufacturing data in the shade
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Flat  GST revenues put improved manufacturing data in the shade

The ‘reopening stimulus’ is unlikely to be as effective in India as it has been in other parts of Asia, say experts

According to analysts at Kotak Institutional Equities, the required GST collection monthly run-rate for the rest of the fiscal will be around ₹1.5 trln. (Photo: Mint)Premium
According to analysts at Kotak Institutional Equities, the required GST collection monthly run-rate for the rest of the fiscal will be around 1.5 trln. (Photo: Mint)

Soon after the weak gross domestic product (GDP) data for the June quarter, came the soothing manufacturing purchasing managers index (PMI) reading for August. PMI bounced back to the expansion zone after contracting for five months since March. Manufacturing output expanded in August to 52 compared to 46 in July. A reading above 50 indicates expansion and below this threshold points to contraction. It was led by new domestic orders as businesses reopened after the easing of lockdown curbs, said the IHS Markit survey report.

However, this improvement looks pale against the backdrop of stagnant goods and services tax (GST) revenues. GST collections for August stood at 86,449 crore, slightly less than the 87,422 crore collected in July. Compared to the same month last year, the collections fell 12%.

Analysts at Kotak Institutional Equities say that the flat GST collections point to stagnant consumption.

Also, the gap to bridge the budgeted revenue target is getting wider.

According to Kotak Institutional Equities analysts, now the required monthly run-rate for the rest of this fiscal year will be around 1.5 trillion. This is impossible given the state of the economy, they said in a report on 1 September.

“Even though there will be some uptick in collections over the next few months, we could still witness a CGST shortfall of 1.5-2 trillion against FY2021BE," they added.

Economists are not reading too much into the PMI. Given the rising number of new covid-19 cases, recovery in manufacturing activity could run out of steam.

Miguel Chanco, senior Asia economist, Pantheon Macroeconomics, said the manufacturing sector benefited early from the main exemptions made in the middle of the lockdown. Going ahead, while the government will introduce more easing of restrictions, still-rising cases will dampen its efficacy, he added.

“In all, the ‘reopening stimulus’ is unlikely to be as effective as it has been in the other parts of Asia, as individuals will continue to be extremely wary of venturing out. Moreover, the lingering risk of the government being forced to reintroduce nationwide curbs will keep business investment constrained," Chanco said in a report dated 2 September.

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Published: 02 Sep 2020, 09:51 AM IST
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