On two fronts - the PMI and GST - the numbers are encouraging. An update.
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Indian economy updates - PMI and GST numbers - November 2021
- The story: India's macro numbers brought good tidings, just before the Diwali festival season, 2021. Both the PMI and GST scene looked upbeat.
- PMI manufacturing surges: IHS Purchasing Managers Index (PMI) showed that while manufacturing activities accelerated to an eight-month high in October 2021, job shedding by companies continued in parallel. The logic given is that existing capacities were enough to meet the rising demand. Firms claimed input costs hit a 92-month high, prompted a few of them to raise selling prices.
- The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
- PMI rose to 55.9 in October from 53.7 in the previous month. The reading in October was the highest since February 2021. Firms stepped up input purchases amid stock-building efforts and in anticipation of further improvements in demand, while business optimism hit a six-month high.
- With companies gearing up for further improvements in demand by building up their stocks, it looks like manufacturing activity will continue to expand throughout the third quarter of fiscal year 2021-22 should the pandemic remain under control.
- India wasn't an outlier in improving manufacturing PMI in October. The aggregate emerging market Asia PMI appears to have improved with even China rising further 0.6 point to 50.6, registering the highest reading in four months.
- The improved pace of vaccinations and relative control over new infections likely helped boost business optimism.
- The rising prices for several materials and transportation, with overall input costs increasing at the sharpest rate since February 2014, is becoming a problem now. Higher chemical, fabric, metal, electronic components, oil, plastic and transportation costs are seen all around. Companies are raising their product prices too.
- Input cost inflation accelerated as strong global demand for scarce raw materials continued to push up prices for these items.
- There is a clear lack of pressure on capacity, and the new government guidelines on shift work meant that employment continued to decline.
- While strong growth of both sales and production were noted in each of the three broad areas of the manufacturing sector, it was in intermediate goods that the sharpest rates of expansion were recorded.
- Official figures by govt. are year-on-year growth, while PMI is a month-on-month calculation. In fact, the core sector contracted sequentially by five per cent in September over August.
- GST: The Goods and Services tax collections are doing pretty well.
- In step with the constant rise in the past five months, goods and services tax (GST) collected in October rose to Rs 1.3 trillion, which is 24 per cent higher than in the same period a year ago and 36 per cent more than the collection in the equivalent month of 2019-20, which was before the pandemic.
- This is the second highest collection since the introduction of the new indirect regime in 2017, reflecting strong economic recovery in the second half of the fiscal year. The highest collection ever was more than Rs 1.40 trillion in April 2021.
- The finance ministry thinks this is in line with the trend in economic recovery. This was evident from the trend in the e-way bills generated every month since the second wave. The revenues would have been higher if the sales of cars and other products had not been affected on account of disruption in supply of semiconductors.
- The ministry said the efforts of the state and Central tax administration helped collection, resulting in increased compliance over previous months. In addition to action against individual tax evaders, this has been a result of the multi-pronged approach followed by the GST Council.
- Some measures taken by Council to ease compliance include no filing through SMS, enabling Quarterly Return Monthly Payment (QRMP) system and auto-population of return. During the past one year, GSTN has augmented the system capacity considerably.
- To discourage non-compliance, measures such as blocking e-way bills for not filing returns, system-based suspension of registration of taxpayers who have failed to file six returns in a row, and blocking credit for return defaulters have been taken.
- If the robust GST collection in this fiscal year continues, the target for the year is likely to be exceeded. This would provide some fiscal space to absorb the increased health care costs, etc.
- In the gross GST collected in October, central GST was Rs 23,861 crore, state GST Rs 30,421 crore, integrated GST Rs 67,361 crore (including Rs 32,998 crore collected on import of goods) and cess Rs 8,484 crore (including Rs 699 crore collected on imports of goods).
- Summary: These two indicators show that if a sustained momentum can be maintained, then the coming quarters can see even better numbers. The only sore part of the story is the sad jobs generation numbers. Formal sector jobs are not growing, and the informal sector is under deep stress. The government will have to, sooner or later, take this into account, and ensure concrete steps.
- EXAM QUESTIONS: (1) Explain the concept of PMI. What does a good reading on it indicate? (2) Explain the three major problems that India's GST system faced through the years. What steps were taken to minimise those? (3) Ensuring better compliance on GST is key to getting more steady numbers on collection. How to do that? Analyse.
#PMI #GST #revenues
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