GST Im­pact: IIP Dips to 4-year Low in June

The fall will re­verse as the new tax regime set­tles in: Ex­perts

The Economic Times - - Companies & Economy - Our Bu­reau A Tem­po­rary Blip -0.1

New Delhi: In­dia’s in­dus­trial pro­duc­tion fell to a four-year low in June as man­u­fac­tur­ers re­duced in­ven­to­ries ahead of the tran­si­tion to the goods and ser­vices tax (GST) rolled out on July 1, but ex­perts say this one­time shock will re­verse as the new tax regime set­tles down. Fac­tory out­put as mea­sured by the in­dex of in­dus­trial pro­duc­tion con­tracted by 0.1% in June, dragged down by man­u­fac­tur­ing out­put that fell 0.4%, data re­leased on Fri­day showed. Un­favourable base ef­fect of high 8% growth in June 2016 also mag­ni­fied the im­pact.

How­ever, in­de­pen­dent economists ex­pect in­dus­trial out­put to rise with GST kick­ing in, and 15% rise in sales of pas­sen­ger ve­hi­cles in July point­ing to re­turn to nor­malcy. “As ex­pected, in­ven­tory par­ing prior to the GST re­sulted in a Dec Jan Feb Mar Apr May June In­ven­to­ries trimmed be­fore GST roll­out Shrink­ing coal out­put damp­ens min­ing growth to Elec­tric­ity gen­er­a­tion up

in June Man­u­fac­tur­ing drags in­dus­trial growth

Cap­i­tal goods pro­duc­tion down Sit­u­a­tion to im­prove as GST set­tles down Strong car sales in July Base ef­fect mag­ni­fied the fall in June

mild con­trac­tion in man­u­fac­tur­ing out­put of 0.4% in June,” said Aditi Na­yar, prin­ci­pal econ­o­mist at ICRA.

Data re­leased by the Cen­tral Sta­tis­tics Of­fice on Fri­day showed de­clin­ing growth in 15 out of 23 man­u­fac­tur­ing sec­tors led by elec­tri­cal equip­ment. The gov­ern­ment also re­vised up­wards the fac­tory out­put growth of May from1.7% in the ear­lier es­ti­mate to 2.8% now. Ex­cept con­sumer non-durables and in­fra­struc­ture goods, all other used based cat­e­gories have con­tracted in June 2017.

“This points to­wards the lin­ger­ing im­pact of de­mon­eti­sa­tion on the in­dus­trial sec­tor and demon­strates that im­pact of de­mon­eti­sa­tion has been far more se­vere than an­tic­i­pated ear­lier. Not a good news for in­dus­trial sec­tor in par­tic­u­lar and in gen­eral for the econ­omy,” said Sunil Ku­mar Sinha, prin­ci­pal econ­o­mist, In­dia Rat­ings & Re­search. Re­flect­ing slug­gish ur­ban de­mand, con­sumer durables out­put fell 2.1% while cap­i­tal goods pro­duc­tion fell 6.8%. Con­sumer non-durables out­put rose 4.9%.

“Within the IIP, met­als & automobiles are the only non-con­sumer seg­ments that have grown. Some gov­ern­ment ac­tiv­ity in in­fra could be the main driv­ing force,” CARE Rat­ings said.

Four-year low Brighter out­look

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