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Home >News >India >PMI, GST mop-up point to a pickup in economic activity
The manufacturing PMI increased to 47.2 in June from 30.8 recorded in the previous month.

PMI, GST mop-up point to a pickup in economic activity

  • The latest round of data indicates a bottoming out and that India is on the road to recovery
  • The manufacturing Purchasing Managers’ Index (PMI) increased to 47.2 in June from 30.8 recorded in the previous month

Manufacturing activity in India appeared to stabilize from historic lows and indirect tax collections perked up in June, suggesting a slow recovery from the collapse in demand because of the coronavirus pandemic.

Manufacturing activity in India appeared to stabilize from historic lows and indirect tax collections perked up in June, suggesting a slow recovery from the collapse in demand because of the coronavirus pandemic.

Although manufacturing activity shrank for a third straight month in June, it was at a much slower pace than the previous two months, data released by IHS Markit showed. Central and state governments collected 90,917 crore as goods and services tax in June, also signalling a pickup in demand after tax revenues plunged in the previous two months.

Although manufacturing activity shrank for a third straight month in June, it was at a much slower pace than the previous two months, data released by IHS Markit showed. Central and state governments collected 90,917 crore as goods and services tax in June, also signalling a pickup in demand after tax revenues plunged in the previous two months.

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Though many parts of the economy continue to feel the pain inflicted by measures to stem the pandemic, the latest economic data indicate that the worst may be over and India is on the road to a slow recovery. But these assumptions will only hold if a second wave of coronavirus infections does not sweep the country.

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Signs of a revival

“India’s manufacturing sector moved towards stabilization in June, with both output and new orders contracting at much softer rates than seen in April and May," said Eliot Kerr, an economist at IHS Markit. “However, the recent spike in new coronavirus cases and the resulting lockdown extensions have seen demand continue to weaken. Should case numbers continue rising at their current pace, further lockdown extensions may be imposed, which would likely derail a recovery in economic conditions."

The manufacturing Purchasing Managers’ Index (PMI) increased to 47.2 in June from 30.8 recorded in the previous month, signalling faster normalisation in factory activity since the lockdown measures were eased starting 1 June. The June number was still below the 50-mark that divides contraction from expansion.

Separately, data released by the finance ministry showed that gross GST receipts for June was just 9% below the roughly 1 trillion collected in the same month a year ago.

Bihar and Madhya Pradesh, which saw a massive return of migrant workers during the pandemic, reported sharp growth in receipts from the consumption-based tax at 16% and 24%, respectively, in June from a year ago. However, tourist destinations such as Himachal Pradesh and Uttarakhand as well as states with a strong manufacturing base like Gujarat and Tamil Nadu reported a sharp fall in receipts in the same time. June receipts refer to sales made in May.

While June showed a big improvement from what was collected in the previous two months, it is hard to decipher a month-wise revenue trend, given that the government has eased the tax payment schedule with an interest waiver, a big relief to businesses short of cash. Accordingly, businesses had the option to make tax payments for April, which was due by 20 May, in June either without interest or with the concessional 9% interest. Those with sales up to 5 crore enjoyed total waiver and those above it got the concessional rate. Experts said many small taxpayers may have opted for it, although their total contribution to the tax base may be small.

An official statement from the finance ministry said GST collections for the June quarter was 59% of the revenue collected in the same quarter a year ago, which to some extent, irons out the uncertainties in monthly figures. “While GST collection in the first quarter has obviously seen a substantial dip, the increasing trend in June indicates a recovery being in line soon," said Abhishek Jain, tax partner at EY.

Experts expect the June quarter to be the worst hit, with the recovery picking up momentum in the coming months although certain sectors may continue to face uncertainties. Several indicators including improved tractor sales and a normal monsoon suggest that the economy may gather further momentum.

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