August signals possible recovery in September

Mfg PMI bounces, but GST, diesel, e- way bills lag

The industrial activity has rebounded in August as has been evident from the Manufacturing Purchasing Managers' Index ( PMI). However, some of the other key indicators of industrial recovery, including diesel consumption, GST collections and e- way bills, were still moving sideways, indicating a possible recovery in September.

Manufacturing PMI released by IHS Markit in August has come in at 52, compared to 46 in July, signalling growth for the first time in five months since March. Production growth was largely driven by greater client demand for domestic goods following the resumption of business operations.

However, the decline in exports weighed slightly on overall new orders, as firms cited subdued demand conditions from abroad. Further, job shedding continues in August at a strong rate.

Supply chains were disrupted in August, with firms citing transportation restrictions and supplier delays. These supply chain issues and movement restrictions were reflecting in the fuel consumption patterns as well. Monthly diesel consumption continued to decline for the second month in August.

Diesel consumption accounts for 40 per cent of overall refined fuel sales and is one of the key parameters linked to overall

economic growth.

PSU refiners sold 4.26 million tonnes of diesel in August, down 13 per cent from July and 22.3 per cent from a year earlier, data compiled by IOC showed.

The e- way bills of August also show a marginal decline over July, reflecting the slower intra- state and inter- state traffic.

"If we look at the PMI and diesel data, we find that there has been an uptake in the purchase of inputs by

industries, while the restrictions in transportation and the flooding in several parts of the country has affected the traffic of goods. Hopefully, we should see some recovery from September as the unlock process will support economic activity," said Rahul Bajoria, chief India economist, Barclays.

"But we will have to see the pace of recovery, which could be much slower to take the economy to normalcy," he added.

The GST collections data for August also saw a recovery of 88 per cent of the year- ago period. In July, the collections were 86 per cent of the same month last year. The gross GST revenue collected in August 2020 is Rs 86,449 crore against Rs 98,202 crore in August 2019.

Of the gross GST revenue collected, CGST was Rs 15,906 crore, SGST Rs 21,064 crore, IGST was Rs 42,264 crore ( including Rs 19,179 crore collected on import of goods) and cess was Rs 7,215 crore.

The GST mopup in August was marginally down from the previous month. "We do not have to read too much into the marginal decline sequentially, as domestic collections have attained 92 per cent YoY for operations in July is a sign of economic recovery post- lifting of lockdown," said Abhishek Jain, tax partner, EY.

"A significant part of the dip is attributable to imports, which has witnessed a decline,” he added.