PMI manufacturing rebounds in August after GST jitters

Business Standard By Indivjal Dhasmana September 2, 2017 03:51 IST

Job creation at fastest pace since March 2013

A day after gross domestic product (GDP) data showed a three-year plunge in economic growth at 5.7 per cent in the first quarter of the current financial year, Purchasing Managers’ Index (PMI) data for manufacturing released on Friday gave a ray of hope.

Manufacturing activities bounced back to the growth path in August after the goods and services tax (GST) nervousness pulled it down to contraction in July.

PMI for manufacturing rose to 51.2 points in August from 47.9 points in July. A PMI below 50 shows contraction while above this level denotes expansion. Manufacturing was one of the biggest segments hit by persisting effect of demonetisation and pre-GST confusion as it grew only 1.2 per cent in April-June, from 5.3 per cent in January-March.

Author of the PMI report, Pollyanna De Lima, pegged economic growth in FY18 at 7.3 per cent, indicating the economy will improve after the dismal performance in the first quarter. The economy rose 7.1 per cent in 2016-17.

Also to cope with high workload, manufacturers hired extra staff at the fastest pace since March 2013, showed the survey.

The survey showed that manufacturers remained cheerful of growth prospects, with marketing efforts, the launch of new products and favourable economic conditions expected to lead to output growth in the year ahead.

Nevertheless, worries about the possibility of unexpected policy decisions weighed on confidence and the level of sentiment fell from July’s 11-month high.

As such, there is advice from manufacturers to the government to not go for decisions such as note ban.

Sources in the finance ministry have already ruled out going for a financial year change.

All the three monitored sub-sectors posted substantial recoveries, with capital goods outperforming their consumer and intermediate counterparts in terms of production growth rate, the survey said.

In July, firms had indicated that orders, production and purchasing had been postponed because of lack of clarity on the new tax regime but they have now resumed as manufacturers, suppliers and their clients become more knowledgeable of the GST rates, Lima said.

On the price front, input cost inflation softened to a one-year low as the introduction of the GST reportedly led to higher pricing for some materials and cheaper rates for other items.

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