Indian factory activity gains momentum in August amid GST confusion

The Nikkei/Markit Purchasing Managers’ Index unexpectedly rose to 51.2 in August from July’s contraction of 47.9, marking the biggest one-month jump in more than five years.


Activity in the manufacturing industry in India gained momentum in August, despite government data released on Thursday showing that GDP growth slumped to a three-year low of 5.7 percent in the April-June quarter.

The Nikkei/Markit Purchasing Managers Index unexpectedly rose to 51.2 in August from July’s contraction of 47.9, marking the biggest monthly jump in more than five years, according to a Reuters report.

Both output and the new orders sub-index on the PMI survey also soared in August, which boosted hiring activity to gather steam.

This surprise expansion in factory activity, if sustained in the coming months, could well suggest that India is recovering from the single tax confusion and economic growth might also pick up from the current contraction — snatching back its tag of the fastest growing major economy in the world into the next quarter.

Growth will likely pick up

Prime Minister Narendra Modi scrapped high value currency notes last year in a bid to fight corruption and wipe out black money. The move has slowed down India’s business activity as they suffered from a severe cash squeeze.

However, economists and analysts predicted that cash shocks would disrupt growth in the near term, but would pick up in the long run.

The International Monetary Fund (IMF) also stood pat on its view that India’s GDP will pick up and grow at a rate of 7.2 percent in 2017-18.

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The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington, U.S., April 21, 2017.Reuters file
“Pick-up in global growth anticipated in the April World Economic Outlook remains on track,” the IMF report said.

India’s services sector also gathered steam in the latest quarter and capital investments also bounced back from contraction in the March quarter.

Over and above, if manufacturing and services sector keeps growing and the trend continues, IMF’s projections will likely come true.