After taking a hit due to the implementation of GST in July, the manufacturing sector in India bounced back in the month of August resuming growth in new orders, production, and employment, as per a survey on Friday morning. As per the press release, the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rebounded to 51.2 in August from a low of 47.9 in the previous month, indicating a substantial turnaround from July’s GST-related contraction.
“August’s PMI results showed that manufacturers in India recovered quickly from the sharp slump that followed the introduction of the Goods & Services Tax,” said Pollyanna De Lima, Principal Economist at IHS Markit and the author of the report, as per PTI. For a better understanding of this data, a reading above 50 indicates expansion while a figure below this points towards contraction. The survey stated that all the three sub-sectors that were monitored posted substantial recoveries with capital goods outperforming its consumer and intermediate goods counterparts in terms of production growth rates.
The data also suggested that manufacturers have hired extra staff at the fastest pace since March 2013. “In July, firms indicated that orders, production, and purchasing had been postponed due to a lack of clarity about the new tax regime, but they have now been resumed as manufacturers, suppliers and their clients have become more knowledgeable of the GST rates,” Lima added.
The survey comes out just one day after it was revealed that India’s economic growth slipped to a three-year low of 5.7 per cent in April-June as disruptions caused by demonetisation spilled over to the third straight quarter amid a slowdown in manufacturing activities. GDP expanded by 6.1 per cent in the preceding quarter.
However, Lima suggests that the Indian economy will recover marginally in FY17. “After a loss of momentum in fiscal year (FY) 2016, IHS Markit forecast the Indian economy to recover marginally in FY 2017, with real GDP growth expected at 7.3 per cent,” she added.