The recent stats and numbers released underscore that the economy of the nation is slowing down steadily. Currently, it has emerged as the top issue for the new government. There are three areas that highlight the challenge faced. The first is the dipping in the collection from GST Return. In June the number reached as low as INR 1 Lakh Crore. The second is the softening of the manufacturing sector. The third is the slowing of the core sector. Together, the three create an almost insurmountable hurdle for the finance minister Nirmala Sitharaman.
In this article, we take a detailed and insightful look at the three pain points of India’s slowing economy.
- The Decreasing GST Return Collections
In April, the GST collection was well over 1.13 Lakh Crore. In May, the number dipped to just slightly over 1 Lakh Crore, and in June the GST Return receipts slipped to Rs 99,939 crore.
The steadily declining GST collections are the biggest proof that the economy is in dire straits. When compared to the last years GST mop-up in the same month, the amount was higher by 4.5%. It implies that the new budget for the year will have to factor in lessened revenue growth.
A partner in PwC India in the indirect tax department says that the lowered collection and such meagre growth from last year should be a cause of alarm for the government. Tangible measures will be required for the tide to reverse. Even more concerning is the all-time low GDP of the country has attained when seen over the past five years. At almost 6.1% in FY19, the government will have to unveil drastic measures if they want the growth back on track and not sliding down the current muddy hill.
- The Declining Manufacturing Niche
The momentum the manufacturing niche gained has been lost entirely due to lower orders which impacted output and employment. Since the September quarter of FY18, the expansion of the level of manufacturing has been the weakest.
As per the Nikkei India Purchasing Managers’ Index, the manufacturing sector fell from 52.7 to 52.1 in just one month. The PMI prove undoubtedly that the niche has experienced a setback. That said, the push is only slight because the index is still above the fifty-point mark. It is when the index falls below 50 that the niche will be in a state of contraction instead of expansion.
In more understandable words, manufacturing growth is still occurring but at a very tepid rate and much slower than what happened previously. The indicators are clear. Limited spending by the government at the start of the year kept the expansion of infrastructure low, which impacted the economy considerably.
- The Softening Core Sector
The annual growth of the core sector industries in April was estimated at 2.6%. The estimate was sharply revised to 6.3% after cold rolled coils were included in the steel sector, which increased its output in April to 19% from the predicted 1.5%. The annual growth of the eight core sector industries in May was 5.1%. When you compare the annual output growth of the core sectors in April (6.3%) and May (5.1), the conclusion is obvious. The industries are declining.
There are 8 core sectors:
- Crude Oil
- Natural Gas
- Refinery Products
Together, they are responsible for 40.27% weight of the IIP or Index of Industrial Production. From May 2018 to May 2019, only four of these eight industries demonstrated a growth rate in the positive. Of the four, two were electricity and steel whose output inclined by 7.2% and 19.9%. The three that declined the most were:
- refinery products
- crude oil
Crude oil demonstrated the lowest production at about 6.9%. The biggest reason for this slowdown is the lowered government expenditure in the sectors. Due to elections, most of the funds were utilised for social programs which saw a rollover of subsidies to some of the segments of the core industries. Effectively, this led to a decline in output.
These were just three of the apparent pain points of the economy. There are many other factors. The conclusion, however, remains the same. Government interventions are necessary for the economy to turn.