GST collection falls, exports drop: Is India's economic growth slowing?

What seemed like a one-off issue is starting to look like a trend. Growth in collection from goods and services tax (GST) fell to 6.5 per cent, its lowest level in 40 months. At 6.5 per cent, GST collection barely tracked inflation, which means there was no volume growth. The trade deficit widened to $29.7 billion in August from $24.2 billion a year earlier. India’s merchandise exports, its weakest spot and a tell-tale sign of India’s poor competitiveness, declined to $34.7 billion in August from $38.3 billion in the same month last year. The annual gross domestic product (GDP) growth rate is down from 7.8 per cent to 6.7 per cent. The index of industrial production (IIP), which tracks the output of eight core industries, such as coal, oil, and electricity, was negative in August for the first time in three years. In September, car sales fell by 19 per cent over the same period last year.

Given how macro data is collected and collated by the government, some numbers may turn out to be less bad than they appear. For example, I would not rely much on the IIP data. However, the data bits on export and GST are highly reliable. So is the data that is sourced from companies, such as the purchasing managers’ index. The PMI hit an eight-month low at 56.5 in September from 57.5 in August. The services PMI fell to 57.7 points in September to hit a 10-month low; it was 60.9 points in August 2024. Home loan disbursement was down 9 per cent in the first quarter, auto loans were up 2 per cent, and personal loans increased just 3 per cent. Credit disbursement by fintechs is stagnant. In April-August, diesel sales rose just 1 per cent year-on-year (Y-o-Y). A slowdown seems to have set in.
 

The quarterly-results season is on and early results from the largest Indian companies have been disastrous. Last week, Bajaj Auto’s stock price declined over 15 per cent, its largest weekly fall since January 2011, following the release of the Q2 FY25 results; operating profit was down 2.68 per cent Y-o-Y, and the operating profit margin (OPM) slumped from 20 per cent to

16 per cent. Worse, the management projected growth in festival-season sales of just 1-2 per cent, far below the industry expectation of 5-6 per cent. The Indian consumption story has been weak for a while. Poor economic policies have depressed the income of the middle class and lower-income groups and real wage growth has turned negative. Even Nestle India’s products, usually less susceptible to a slowdown, have been hit. Domestic growth in volumes was only 1 per cent, similar to saturated and stagnating developed countries. Net profit was up only 7 per cent and revenue from operations increased just

3.3 per cent.
 

Services export is seen as a bright spot for India. Contrary to the never-ending bullish commentary about global capability centres (GCC) that dot Bangalore, Hyderabad, Chennai, and Gurugram, the growth numbers are underwhelming. Services exports grew at only 8.92 per cent between 2014-15 and 2023-24. Not surprisingly, Infosys’ September-quarter results were poor as revenues struggled to even beat inflation. Profit was up only 4.73 per cent and revenues increased just 5.11 per cent Y-o-Y. It was no different at Tata Consultancy Services, India’s largest IT services company. Revenue rose 7.06 per cent while net profit was up only 5 per cent. Another Nifty 50 company, LTI Mindtree, reported a revenue increase of 5.92 per cent and profit growth of 7.68 per cent. Kotak Mahindra Bank and HDFC Bank, two other behemoths of the Nifty 50, reported just 5 per cent increase in profit.

A recent research report by Nuvama says the Indian economy faces a major demand deceleration; several indicators are hovering around pre-Covid levels. One reason, according to Nuvama, is that government capex seems to have peaked after four strong years while the private sector has not picked up the baton as yet. It said: “India’s corporate profit growth may also have peaked out as (the) top line is weak and best of the margins are behind as terms of trade have faded.” As mentioned earlier, the first crop of results by large companies seems to support this view.  
 

However, there are some positive data points. Net direct tax collection continues to be robust, thanks to India’s booming stock markets yielding capital gains tax. India’s forex reserves have hit $705 billion. 5G smartphone sales are growing 23 per cent, making India the largest 5G market globally after China. Electronics manufacturing has recorded strong growth, supposedly reflecting the success of “Make in India”. After a brief hiatus due to the general elections, the government has stepped up its capital expenditure in defence, renewable energy, and infrastructure. These pockets of positive data help in chest-thumping but pale into insignificance when set against the big picture of a slowdown — poor private investment, weakness in manufacturing and exports, and small wage growth.
 

Last fortnight I pointed out the permanent changes being highlighted by stock-market experts, such as a strong banking system, a strong current account, low inflation, a controlled Budget deficit, and a low debt-to-GDP ratio, don’t hold up on closer scrutiny. Now the data shows that the Indian economy remains a cyclical play after all; there has been no fundamental transition to higher income through higher productivity and improved competitiveness. After all, prosperity is not India’s birth right. We need to do the hard work of raising rural incomes through agricultural reforms, make mass manufacturing cheaper, and exports competitive. These are nowhere on the agenda. But the popular narrative is that this is “India’s century” or “India’s era”. If growth reverts to the pre-Covid level, a lot of people may have to temper their rosy optimism.

The writer is editor of www.moneylife.in and a  trustee of the Moneylife Foundation; @Moneylifers