Too early to call

Essential to see if demand holds in coming months

For the first time since the national lockdown was imposed in response to the pandemic in March, goods and services tax (GST) collection has crossed the Rs 1 trillion mark. At Rs 1.05 trillion in October, collection is up from Rs 95,000 crore in September. This is also 10 per cent higher than the GST collection in October last year. Meanwhile, the Markit purchasing managers’ index for manufacturing, widely watched as an index of optimism within the industrial sector, climbed to 58.9 in October — its highest level in more than 10 years; again, the index had turned negative after the lockdown was imposed in March. The monthly sales data for the auto sector and fuel consumption is also encouraging. All this might be taken to represent signs that the easing of lockdown restrictions is finally causing logistical hurdles to be removed and for the resumption of some demand and production in the economy that had earlier vanished.

Naturally, given the depth to which the economy had sunk during the lockdown, the resumption of activity will provide the sort of sharp acceleration that is being seen in indicators like the PMI. Yet, there are additional green shoots that might provide grounds for optimism. For example, as this newspaper has argued, profit after tax (PAT) for a sample of listed companies that have announced their quarterly results has shown a remarkable increase year-on-year. Even once anomalous and one-time losses in the previous year are removed from the sample, both operating profit and PAT have shown a healthy rise. This might suggest that corporate India has some additional wherewithal to manage the period till the resumption of demand and growth.

Yet, whatever optimism these numbers give rise to should be tempered by a more sober judgement on whether they portend a revival. One of the realities about data-watching in India is that the festive season tends to get in the way of conclusive conclusions, given its tendency to move around in the calendar. Until the data on post-festival months is in and the pickup appears to be sustained, it would be dangerous to plan any policy around these recent prints. The finance ministry should be particularly careful. It has now entered the period when planning for next year’s Budget will begin. But it would be unwise to base any Budget projections or even policy on this recent data. Policymakers should wait additional months before determining the degree to which any revival can be counted on.

This will impact not only the Budget mathematics — which the government must work on particularly hard, given its failures to do its sums in recent years — but also its plans on spending and sectoral incentives in the Budget. For example, it might be too soon to assume that demand is on course to revive on its own. And there is the ever present threat of a second wave of the virus itself, which might once again force interruptions to the supply chain and again depress demand. In spite of these hopeful numbers, the course of the next month and indeed the next financial year is deeply uncertain and contingent on multiple factors. The government must wait for some more time before coming to a conclusion on its strategy.