India improves ease of doing business but GST still hurts manufacturing

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Published: November 1, 2017 1:33:34 PM

Manufacturing activities have slackened in October due to the negative impacts of the switch to the GST regime even as India showed a remarkable improvement in ease of doing business.

 Manufacturing activities have slackened in October due to the negative impacts of the switch to the GST regime. (Image: Reuters)

A day after India’s remarkable performance on Ease of Doing Business Indicator, there’s a slight pullback as manufacturing activities slackened in October due to the negative impacts of the switch to the GST regime. The Nikkei India Manufacturing Purchasing Managers Index (PMI) fell to 50.3 in October from 51.2 in September, indicating a “broad stagnation” in the manufacturing sector.

The Manufacturing PMI is an indicator of the economic health of the manufacturing sector, which surveys 400 purchasing managers in the manufacturing sector to analyse a country’s manufacturing demand. The indicator’s 50 mark separates expansion from contraction. Any country going beyond the 50 mark shows an expansion in manufacturing activities and below 50 mark shows contraction.

“Inflows of new orders stagnated as the negative effects arising from the implementation of GST (goods and services tax) continued to dampen demand levels, ” Aashna Dodhia, Economist at IHS Markit, which compiles the survey, said.

According to the survey, new export orders also dropped in October at the fastest pace since September 2013. “Disappointingly, manufacturing production rose at the weakest pace in the current sequence of growth,” said Aashna Dodhia. “Overseas demand for Indian goods dipped to the greatest extent since September 2013,” he added.

The silver lining, however, is firms added to their payroll numbers at a similar pace to that of September in response to greater volumes of outstanding business, PTI reported. On the price front, input cost pressures rose at the fastest pace since May. Subsequently, firms reportedly raised their output prices to pass on greater cost burden to clients and protect their profit margins.
Meanwhile, the level of business confidence eased to the weakest since February.

“Business confidence eased to the weakest since February as some firms expressed concerns over negative GST effects. However, those manufacturers that were optimistic forecast benefits of GST materialising over the next 12 months,” Dodhia added.

Meanwhile, an official data showed that India’s eight core sectors grew to a six-month high of 5.2% in September, helped by a robust performance in coal, natural gas and refinery segments.

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