Sharp rise in manufacturing output good sign

Reflecting the gradual recovery in India's Covid-battered economy, GST collections crossed Rs 1 lakh crore mark and stood at Rs 1.05 lakh in October. It was the first time in the last eight months that the inflows from indirect taxation moved past the psychologically important mark. Further, the GST revenue last month was 10 per cent higher when compared to the same month a year ago. In October 2019, GST collections were Rs 95,379 crore. The indirect tax collections took a hit and registered a steep fall as the lockdown imposed in the last week of March this year to contain Covid-19 spread, took a heavy toll on the economy. The October tax data reveals that the economic activity across the country picked up post the unlocking.

The manufacturing activity for October also indicated a positive traction in the economy. As per data released on Monday, the IHS Markit India Manufacturing Purchasing Managers' Index (PMI) zoomed to a 13-year high of 58.9 last month from 56.8 recorded in September this year. In PMI parlance, a print above 50 indicates expansion, while a score below that means contraction. Owing to Covid-induced economic crisis, the index contracted in April. Prior to that, it remained in growth territory for 32 consecutive months. The PMI survey also indicated a strong upswing in input buying. That shows that companies are confident of sustained sales growth.

However, there is a worrying factor in the PMI data. Payroll numbers continued their downward trajectory in October as well, as some companies went ahead with more layoffs. On the brighter side, inflationary pressures remained subdued. This could be gauged from the fact that there was a modest escalation in input costs and marginal rise in selling prices.

But it's unlikely that similar momentum will continue in this key sector in coming months unless the central government initiates more stimulus measures. In the wake of lockdown restrictions and due to Covid-induced economic crisis, consumers postponed their non-essential purchases during the past several months. With the unlocking and gradual rise in economic activity, consumers are slowly increasing their spending. So, the pent-up demand is driving the sales, leading to rise in the manufacturing activity. However, there is a danger of lower sales once pent-up demand dries up. Further, there is also another danger of India witnessing a second wave of Covid-19 as currently being witnessed in Europe.

The International Monetary Fund's Chief Economist Gita Gopinath, in her article in a global financial daily, underlined the need for the policymakers around the world to extend more fiscal stimulus to boost economic growth. According to her, the global economy is in a liquidity trap and efforts should be made to pull it out of the trap. She has pointed out that central banks have little room now to cut interest rates to boost growth. Her observations are more apt for India as our economy suffered a staggering 23.9 per cent contraction in the first quarter. More stimulus measures are need of the hour to boost GDP growth in India as RBI is not in a position to cut interest rates due to rising inflation.