PMI, GST data indicate sustained economic recovery

India’s manufacturing activity remained robust a month after touching decadal high and indirect tax collections scaled ₹1 trillion mark for the second consecutive month in November, signaling recovery process in Asia’s third largest economy may still be on track.

Deepening contraction in core sector growth comprising eight infra sectors in October after nearing zero mark in September had raised questions on sustainability of the normalization process in the economy.

Data released by the analytics firm IHS Markit on Tuesday showed Purchasing Managers’ Index (PMI) for manufacturing sector fell to a three month low at 56.3 from an over 12 year high of 58.9 in October but remained strong.

A figure above 50 indicates expansion, while sub-50 signals contraction.

Separately, the finance ministry data showed Goods and services tax (GST) revenue of the central and state governments touched 1.05 trillion for the second month in a row, growing 1.4% from the revenue collected in same month a year ago, after the sharp decline in the initial months following the nationwide lockdown.

After showing year-on-year contraction in the April to August period, GST receipts showed a positive trend in September, which got pronounced in October, indicating that the economic recovery is on in line with the lifting of lockdown restrictions.

According to PMI data, factory orders, exports, buying levels and output saw slow recovery while pandemic related restrictions caused a further drop in payroll numbers. Input costs and output charges rose at accelerated rates that nevertheless remained below their respective long-run averages.

Pollyanna De Lima, economics associate director at IHS Markit said the softening of rates of expansion seen in the latest month does not represent a major setback, since these are down from over decade highs in October, a spike in COVID-19 cases and the possibility of associated restrictions could undermine the recovery. “For now, firms are projecting sustained demand growth in the near-term and responded to this by lifting input buying to increase their safety stocks. Employment remained in contraction territory with companies reportedly keeping the minimum possible number of workers as per government guidelines." She added.

Out of the ₹1.05 trillion revenue collected in November, central GST is ₹ 19,189 crore, state GST is ₹ 25,540 crore, IGST is ₹ 51,992 crore and cess is ₹8242 crore. November receipts refer to sales made in October.

An official statement from the finance ministry said the total revenue earned by central government and the state governments after regular settlement in the month of November is ₹ 41,482 crore for CGST and ₹ 41,826 crore for the SGST.

Pratik Jain, partner at PwC India said the GST collections trend continues to reinforce the belief that economy is recovering fast. “Now that the festival season is over, one would have to see if December collection is also buoyant. The other encouraging aspect is a gradual increase in number of GST returns that are now getting filed which indicates that overall compliance level is improving with increased use of technology and initiatives such as e-invoicing by the government," he added.

The pace of contraction in the Indian economy slowed in September quarter to 7.5% from a historic high of 23.9% contraction in June quarter. While some research agencies have revised upward their GDP forecasts for India, S&P Global Ratings on Monday stuck to its earlier projection of 9% dip in GDP in FY21 holding it awaits more proof of sustained recovery in economic activities.

“While there are now upside risks to growth due to a faster recovery in population mobility and household spending, the pandemic is not fully under control. We will wait for more signs that infections have stabilized or fallen, together with high-frequency activity data for the fiscal year third quarter, before changing our forecasts,” it said on Monday.