Mixed signals for economy

More bad news on the economic front. The Goods and Services Tax (GST) recorded the lowest collections in September in nineteen months. These were Rs 91,916 crores against Rs 98,202 crores in August and Rs 94,443 crores in the corresponding month last year. This was the second straight month that the collections had fallen below the Rs 1-trillion (one lakh crore) mark. In the first six months of this calendar year, the GST collections had grown by 4.9 percent as against the same period last year. The official monthly target is Rs 1.8-trillion.

The central GST in September stood at Rs 16,630 compared to Rs 17,733 in August; the State GST was Rs 22,598 compared to Rs 24,239 in August. The integrated GST was lower at Rs 45,069 in September compared to Rs 50,612 in August. In short, slowdown in the economy is pinching GST collections. How far the huge giveaways to the corporate sector would rev up the economic engine leading to higher collections is too early to tell, though the government can look forward to higher collections in October due to the onset of the festive season, including Diwali. Other indicators, however, suggest that it may be a while before the economy again gains momentum. Core sector growth in August reported dismal numbers, with five out of the eight sectors registering sharp deceleration. Overall growth in these five sectors slipped to -0.5 per cent in August as against a healthy growth of 4.7 per cent in the same month last year.

Coal was the worst performer, contracting by 8.7 per cent over the same month last year. Core sector accounts for 40 per cent of the total industrial output and has coal, crude oil, natural gas, refinery products, fertilizer, steel, cement and electricity numbers. Only steel, fertilizer and refinery products recorded growth in August this year. Overall core sector growth slid to an eight-month law of 4.2 per cent in August, down from 7.3 per cent in the previous month. Data for car sales for September saw decline with Maruti Suzuki, the country’s largest automobile manufacturer, recoding a 32.7 percent fall in sales.

In this sector too the manufacturers are optimistic that the government incentives coupled with the huge discounts offered by them would result in much higher sales in the current festive period. Some economic observers argue that the mood might have already changed for the better given the rise in the Sensex following the corporate tax cuts and other incentives. The feel-good factor in the economy was back. With the government encouraging banks to disburse loans generously and the manufacturers offering incentives, there could be a pick-up in demand for commercial vehicles and tractors as well.

Meanwhile, despite the public image of distributing largesse all around and majorly cutting corporate taxes, the government has managed to keep its borrowing within limits. Its total borrowing of Rs 4.42 lakh crores in the first six months of the current fiscal is within the set parameters. Despite forgoing Rs 1.47 lakh in corporate taxes, it might still achieve the budgetary target of 3.3 fiscal deficit this year. Even the current account deficit is within the range at two per cent, down from 2.3 per cent in the same six months last fiscal. It may be due to higher service exports this year, but the target of containing fiscal deficit at 2.3 per cent now seems achievable. 

However, given the global slowdown, the Brexit crisis, the US-China trade war and the general uncertainty in West Asia, it is unlikely that we can achieve eight per cent growth this year. Most observers reckon that at the current going growth might be six to 6.5 per cent rather than over seven percent. We need to grow at nine per cent every year to attain the prime minister’s goal of a $ 5-trillion economy by 2024. As things stand, this is not in the realm of possibility.

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