GST Impact: IIP Dips to 4-year Low in June
The fall will reverse as the new tax regime settles in: Experts
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