Budget challenge: A slowing economy shows its pain points

NEW DELHI: Data released on Monday underscored the country’s slowing economy, which has emerged as a key concern for the new government. Goods and services tax (GST) collections dipped below Rs 1 lakh crore in June while manufacturing turned soft and core sector growth slowed in May, highlighting the challenges that confront finance minister Nirmala Sitharaman as she readies to present her first budget on Friday.After three months of over Rs 1 lakh crore in collections, GST receipts fell to Rs 99,939 crore in June, down from over Rs 1,00,289 crore in the previous month, according to finance ministry data.GST mop-up was 4.5% higher than the Rs 95,610 crore collected in the same month of the previous year, suggesting the July 5 budget may have to factor in a lower revenue growth from the tax that has just completed two years.70033618 “This moderate growth in collections (over last year) would be a concern and we should expect some tangible measures in the form of increased audits and scrutiny over next few months,” said Pratik Jain, partner and leader, indirect tax, PwC India.India’s GDP growth slowed to a five-year low of 6.8% in FY19 and it is expected the government may unveil measures to get the economy back on track.CORE SECTOR SLOWSThe eight core sector industries grew 5.1% in May compared with an upwardly revised 6.3% in April. A sharp revision in growth of the steel sector in April at 19%, due to the inclusion of cold rolled coils, led to core output growth being revised to 6.3% from 2.6% in the earlier estimate. April steel output was estimated to grow 1.5% earlier.Effect of Lower Government SpendingThe eight core sector industries — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — have a 40.27% weight in the Index of Industrial Production (IIP).Four out of the eight core industries registered a positive growth rate in May 2019 over May 2018.Steel and electricity output rose 19.9% and 7.2%, respectively, while crude oil, refinery products and fertiliser declined — the steepest drop was registered in crude oil output at 6.9%.“There was limited activity in the government sector on account of the elections as government expenditure was more towards social programmes, which includes the rollover of subsidies in some segments,” said CARE chief economist Madan Sabnavis, adding that this can be seen in low growth in cement for the second successive month.MANUFACTURING SOFTManufacturing lost momentum in June due to a softer increase in orders that hurt output and employment growth, a private survey showed on Monday, bringing the expansion level for the opening quarter of FY20 to the lowest since the September quarter of FY18.“Economic growth is muted and these indicators are confirming that,” said Kotak Mahindra Bank economist Upasna Bhardwaj. “Manufacturing growth continues to remain tepid. The limited government spending in the beginning of the year is expected to have kept infrastructure growth muted. With restart of government spending, we expect some traction in the months ahead.”The Nikkei India Manufacturing Purchasing Managers’ Index fell to 52.1 in June from 52.7 in May, albeit remaining above the 50-point mark that separates expansion from contraction. “PMI data highlighted a slight setback in the Indian manufacturing sector during June,” said Pollyanna De Lima, principal economist at IHS Markit and author of the report.

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