A day after getting a boost from the World Bank’s global report on ease of doing business, and from the core sector data, there is a dampener for the economy.
Manufacturing activity barely managed to grow in October, due to an adverse impact of the goods and services tax (GST) on new coming orders, according to the widely-tracked Nikkei purchasing managers’ index (PMI).
However, growth in employment remained the same as in September.
Despite being a month of festivals, October saw the PMI falling to 50.3, from 51.2 in September. A reading above 50 shows expansion and below 50 means a contraction. This is for a third month in a row that the index has come above 50.
The decline in manufacturing growth was mostly because of stagnation in new business, the report said. Moreover, new export orders dropped at the fastest pace since September 2013. If reflected in official numbers, merchandise export growth might come down in October, after double-digit growth in August and September.
“Inflow of new orders stagnated as the negative effects arising from the implementation of GST continued to dampen demand levels,” said Aashna Dodhia, economist at IHS Markit and author of the report.
Dodhia said the recent recovery in the manufacturing sector lost impetus in October. “Manufacturing production rose at the weakest pace in the current sequence of growth.”
The silver lining, however, was firms hired more workers in October; employment growth, being as it was in September, responding to greater volumes of pending business. This was the third month of a rise in jobs.
On the price front, input cost pressure rose at the fastest pace since May. Subsequently, companies reportedly raised their output prices to pass on a greater cost burden to clients and protect their profit margins.
“Business confidence eased to the weakest since February as some firms expressed concerns over negative GST effects. However, those manufacturers that were optimistic forecast benefits of GST materialising over the next 12 months,” Dodhia added.
India jumped 30 notches to 100 in the World Bank’s Ease of Doing Business ranking. Also, the index of eight core industries expanded by 5.2 per cent in September, the fastest pace so far this fiscal year.
 "Factory activity barely grows in October as GST pinches")
