The recovery in the manufacturing PMI is a comforting cold in the face of stagnant GST collections

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MUMBAI: After the horrific domestic raw data (GDP) for the June quarter, came the purchasing managers index (PMI) reading for the month of August.

Data printing showed PMI rebounded towards the expansion zone after contracting for five months since March. Manufacturing output rose in August to 52 from 46 in July. A reading above 50 indicates expansion and a number below that indicates contraction. This was driven by new domestic orders as businesses reopened after the lockdown restrictions eased, the IHS Markit investigation report said.

However, this improvement is pale in the context of the stagnation of the collection of the goods and services tax (GST).

The GST clean-up for August amounted to 86,449 crore, a little less than 87,422 crores raised in July. Compared to the same month last year, collection is down 12%. With this, the gap to meet the budgeted income target only widens.

According to analysts at Kotak Institutional Equities, the monthly execution rate required for the remainder of this fiscal year would now be around 1.5 trillion. This is impossible given the state of the economy, they said in a report dated September 1.

“We note that GST collections for fiscal year 2021 are budgeted at 13.4 trillion, 6.9 trillion for the central government and 6.5 trillion for state governments. Even though there will be some improvement in the collections over the next few months, we could still see a CGST deficit of 1.5-2 trillion against FY2021BE, ”the Kotak report added.

As for the PMI, economists do not read too much. Given the growing number of new coronavirus cases, the recovery in manufacturing activity could run out of steam.

Miguel Chanco, senior economist for Asia at Pantheon Macroeconomics, says the signal from the PMI is that the V-shaped year-over-year recovery in manufacturing output is over. According to Chanco, the manufacturing sector benefited early from major exemptions granted amid the lockout. Going forward, as the Indian government introduces further easing of restrictions, still rising cases will reduce its effectiveness, he warned.

Overall, it is unlikely that the << relance de la réouverture >> be as effective as it has been in other parts of Asia, as people will continue to be extremely reluctant to go out. In addition, the persistent risk that the government will be forced to reintroduce national suburbs will limit business investment, ”Chanco said in a September 2 report.

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