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

The Economic Times - - Economy: Macro, Micro & More - Our Bu­reau

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.

OUT­LOOK POS­I­TIVE

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.

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