PMI Index: GST Still a Major Roadblock In Services Revival
PMI Index: GST Still a Major Roadblock In Services Revival Thu, 07 Dec 2017

PMI Index: GST Still a Major Roadblock In Services Revival

The Narendra Modi government wants us to believe that the "teething troubles" due to GST are behind us. However, the cascading effects of the hasty roll-out of the flawed GST are still being felt. This is because effects of comprehensive economic policies do not weather off in just one or two business cycles, they have systemic effects on the whole monetary apparatus of an economy where applied. The same is the case with the Goods and Service Tax policy in India. Despite tax revisions on numerous items and various relief packages, the deep-seated effects of GST i.e. sluggish production and low market demand, continue to be widely conspicuous in consumer sentiments and business activities.

As seen by the Nikkei India Services PMI (Purchasing Managers Index) Business Activity Index, India's service activity continues to be in a contractive spiral. A reading above 50 index point in the PMI index, indicates an economic expansionary path, while a reading below 50 points toward contraction. The economic contraction of service, production, demand and by transitivity of employment and wages. The index started falling in the aftermath of demonetisation last year. One year hence, compounded by the effects of GST, the index has failed to recover consumer confidence as well as production, falling to a new low of 48.5 in November 2017. Those surveyed said the introduction of the goods and services tax (GST) had led to ‘subdued demand conditions’

Services, which used to be the bedrock of the Indian GDP bandwagon have gone into a state of dormancy with low wages and resource unloading still continuing at a high pace. A major reason for this was that new business and services have failed to gain any momentum. The small bounce seen in October has now fizzled out, as both supplies, as well as demand, have failed to gain traction after a small ‘dead cat bounce’ in October. While manufacturing has shown a temporary rise, the numbers still fare weakly when compared to last year’s aggregates. The average manufacturing PMI for October-November 2017 was 51.45, compared to 56.8 in October-November 2016.

What is rather shameful is the fact that the RBI continues to be confident about the economic bounce-back suggesting that effects of GST will be temporary and demand lag in services will subside by the next quarter. With rising input costs as seen in the manufacturing PMI, such a prediction is rather a hopeful plead rather than a stout projection backed by concrete macroeconomic aggregates