GST Weighs on Manufacturing in July
PMI hits over 8-year low of 47.9 in July but 28% of cos see higher output over next 12 months
New Delhi: India’s manufacturing industry suffered a contraction in July due to disruption in demand and production caused by the rollout of the good and services tax (GST), but the industry is confident about a quick rebound, shows a survey released on Tuesday. The Nikkei India Manufacturing Purchasing Manager’s Index (PMI) – an indicator of the economic health of the manufacturing sector derived from monthly survey of companies – stood at 47.9 in July, its lowest mark since February 2009.
A reading below 50 indicates contraction and above 50 on the index indicates expansion. The index reading was 50.9 in June.
Most of those surveyed, however, expect a quick rebound from GSTrelated disruptions, and the level of confidence was at an 11-month high.
“Manufacturing growth in India came to a halt in July, with the PMI down to its lowest mark in almost eight-and-a-half years amid wide-
spread reports that the sector has been adversely affected by the implementation of the GST,” said Pollyanna De Lima, economist at IHS Markit and author of the report. New orders and output decreased for the first time since the demonetisation-related downturn in December last year, and both fell the steepest in more than eight years. The rate of reduction was the most pronounced since the global financial crisis, the survey said.
Citing anecdotal evidence, the survey showed that GST launch hampered demand, due to which compa-
nies adjusted production lower in July.“Those panelists that signalled reduction blamed lower inflows of new work and the introduction of the GST for the downturn,” it said.
Despite the slump in manufacturing activity, Indian manufacturers foresee better times ahead, with almost 28% of companies anticipating higher output over next 12 months.
GST is expected to support formal sector growth going ahead, and the industry is hopeful that the RBI will ease key lending rates this week.