New Delhi: India’s manufacturing activity slowed down to its lowest level in over nine years in July dragged down by disruptions to business activity following the launch of GST, according to Nikkei/IHS Markit Manufacturing Purchasing Managers’ Index (PMI) released on Tuesday.
The Nikkei/IHS Markit PMI unexpectedly fell to 47.9 in July from 50.9 a month earlier, its lowest mark since February 2009. The survey said it highlighted the first deterioration in business conditions in 2017 so far. Any figure below 50 indicates contraction and above 50 positive growth.
“Data indicated that the introduction of GST weighed heavily on the Indian manufacturing industry in July,” said the survey. It said new orders and output decreased for the first time since the demonetisation-related downturn recorded in December last year, with rates of contraction the steepest since February 2009 in both cases.
“Consequently, companies purchased fewer quantities of inputs for use in the production process, leading to an overall decline in holdings of raw materials and semi-finished items. Cost burdens increased further, but factory gate charges were lowered as firms attempted to win new business,” it said.
The survey said that anecdotal evidence indicated that the GST launch hampered demand.
“Lower sales triggered an overall accumulation in stocks of finished goods. The rise in holdings of manufactured products was marginal, but interrupted a two-year period of ongoing depletion,” it said
“Upcoming PMI releases will show whether underlying conditions remain on the downside or if July’s contraction was a temporary blip. Goods producers foresee the latter, with panellists widely commenting that a lack of clarity regarding tax rates caused confusion among suppliers and manufacturers themselves when agreeing on prices. As such, businesses expect GST information to become clearer in coming months,” said Pollyanna De Lima, principal economist at IHS Markit.
