Industrial output, tax numbers show note ban impact

IIP contracts 0.4% in December, tax collections growth slower in January

Some impact of currency demonetisation on industries was visible in December, and even a month after, showed two sets of government figures released on Friday.

The Index of Industrial Production (IIP) fell 0.4 per cent in December, after a 5.6 per cent rise the previous month. Corporation tax rose only 2.9 per cent in the April-January period (first 10 months) of the current financial year, although the growth was 4.4 per cent till April-December.

Excise duty collections showed similar impact-the growth was down to 26.3 per cent in January against 31.6 per cent in December. However, these collections also showed the impact of some fading away of the base effect of oil duty increases.

Service tax rose at a slower 9.4 per cent in January against 12.4 per cent in December, with the slowing of discretionary expenditure after the note ban.

Though the significant IIP rise in November seems surprising, as it was the first month of demonetisation, this was largely due to the higher number of working days, with many festivals in October this time, after having occurred in November during 2015. The actual test of the note-ban was December for IIP.

Manufacturing, 75.5 per cent of the index, dragged down the industrial production. It fell two per cent in December.

However, it appears demonetisation did not affect industries that much, as IIP was down only 0.4 per cent and the pace of contraction was teeper in April (1.3 per cent), July (2.5 pc), August (0.7 pc) and October (0.8 pc). In short, the fall in output in December was the slowest among the months when IIP contracted this financial year -- and there was no demonetisation in the previous months.

However, the index represents mainly the organised sector. The note ban's effect could have been much more dampening in the unorganised part of industry.

The other two segments of industry -- electricity and mining - continue to show growth. While mining output grew 5.2 per cent in December against 3.7 per cent the previous month, electricity generation rose 6.3 per cent, against 8.9 per cent.

Even in January, companies were struggling to come out of the woods, shown by the tax figures. "The low growth of corporate income tax, net of refunds, remains a concern. There is growing likelihood of a shortfall relative to the revised estimate for FY17 for corporate income tax," says ICRA principal economist Aditi Nayar.Only basic goods industries showed growth in December. The rest-capital goods, both kinds of consumer goods and intermediate goods-all showed a fall in output.

Part of this could be due to refunds, of Rs 1.41 lakh crore during April-January, 41 per cent higher than in the corresponding period last year.

The government has projected corporation tax to yield Rs 493,923 crore in the revised estimate for 2016-17. That is only Rs 1 crore less than the budgeted estimate.

On excise duty, Nayar said February would give the real picture on collections, as the impact of hike in duty will not be there.

Service tax collection growth also came down to single digit in January, against double digits the previous months. "This might reflect a curtailing of discretionary spending," Nayar said. Customs duty collections showed a zigzag pattern.

In direct tax collection, the kitty continued to see robust growth from personal income tax. However, the growth in the financial year fell to 23.1 per cent till January, although it was 24.6 per cent till December.