GST effect: IIP contracts to four-year low in June

NEW DELHI: Industrial production contracted to a four-year low in June, dragged down by the manufacturing sector as companies slowed output in the run up to the implementation of the Goods & Services Tax (GST).

Data released by the Central Statistics Office (CSO) on Friday showed the index of industrial production (IIP) fell 0.1% in June compared to an expansion of 8% in the previous year-ago period and lower than the 2.8% growth in May. The manufacturing sector, which accounts for bulk of the index, contracted 0.4% in June compared to a growth of 7.5% in June 2016, while the capital goods sector, a key gauge of industrial activity fell an annual 6.8% in June compared with an expansion of 14.8% in the year-earlier period.

“The unfavourable base effect, the reduction in inventories ahead of transition to GST, and slide in growth of non-oil exports culminated in a marginal contraction of 0.1% in IIP in June 2017, a 48-month low performance,” said Aditi Nayar, principal economist at credit rating agency ICRA.

The purchasing manager’s index (PMI) surveys had also indicated a slowdown in the manufacturing and services sectors as companies grappled to absorb impact of the rollout of GST on July 1. Companies now say the re-stocking of inventories have started and the situation is limping back to normal.
The industrial sector has been sluggish for the past few years due to a string of factors, including slowing investment due to the stress in the banking sector.
Experts said they expect factory production is expected to remain muted in the months ahead.


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