PMI, GST data indicate economic stabilisation
The latest numbers signal the worst may be over and India is on the road to stabilisation after a collapse in demand
NEW DELHI: Manufacturing activity in India appeared to stabilise 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 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 is 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.
“India’s manufacturing sector moved towards stabilisation 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 June 1. 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 lakh crore 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 consumptionbased 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.