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Slowdown in Manufacturing Activity Post GST
Nov 7, 2017

Last week saw India jump 30 places to 100 in the World Bank's 'Ease of Doing Business' rankings. While the Indian government's efforts on this initiative are laudable, recent manufacturing activity data doesn't paint a pretty picture.

The Nikkei manufacturing index recorded a low of 50.3 in October 2017 as compared to 51.2 in the previous two months. Also, new export orders is at its lowest level since September 2013. The recent implementation of the Goods and Services Tax (GST) is mainly responsible for this slowdown in demand.

This data comes at a critical time after India posted its slowest GDP growth in 3 years in the April-June quarter. Also, business confidence is low due to uncertainties surrounding the implementation of GST.

While, businesses are hopeful of a revival once the teething problems of GST are eased, the Indian government continues to take a proactive stance.

The government unveiled the Rs 2.11 lakh crore public sector bank (PSB) capitalization plan on 24 October. This will be carried out over the next two years with maximum allocation in the current year.

Through this, the government aims to solve the dual purpose of reviving public sector banks and infusing liquidity into the system.

However, using recapitalisation bonds can only act as a short-term measure to the crisis afflicting Indian public sector banks today. Such a measure will not address the structural issue in the banking system, i.e. the poor standard of lending and poor governance system.

Also, a long term approach is absolutely necessary to revive the manufacturing sector; starting with ironing out the issues concerning GST implementation.

Data Source: Livemint, Markit Economics

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