New Year brings a mixed report for Indian Economy

On the last day of 2019 ( 31st December, 2019) and the first day of 2020( 1st Jan, 2020), the Indian government came out with two important reports on Indian Economy. The Commerce and Industry Ministry came out with the report on the growth rate for the eight core sectors for the month on November on 31st December, 2019. The Ministry of Finance came out with GST collection figures for the month of December based on the economic activity in November on 1st January, 2020.

Source: Ministry of Finance

The Core sector growth remains a concern area. There is a contraction for the fourth month with a combined growth of -1.5% as against 3.3% growth in the same month previous year. Five of the core sectors showed negative growth while three sectors showed positive growth. The growth in October, 2019 was below -5%. Decline is coal production which is linked to power is reflective of lower industrial demand as there is sluggishness in growth in manufacturing and contraction in steel output may be attributed to low performance of related industries like auto and capital goods which are large consumers of the metal.

It should be noted that core sector output contribute to over 40% of the Index of Industrial Production (IIP). Overall IIP growth can just be positive given a very favorable base effect of just 0.2% growth in November, 2018.

Source: Ministry of Finance

The GST collection for the month of December based on the economic activities in November showed a 8.9% growth as compared to the same month previous year. This is the second consecutive month where GST collection was more than Rs 1 lakh core and also reflecting positive growth after negative growth in September and October. With respect to previous month however there is a marginal decline. But this decline is less than the decline for the same period previous year.

This rise in economic activity can be good news for the economy which was witnessing lack of demand. One reason for the increase in GST collection is the step taken by government to cap the input tax credit to 20% to control for revenue leakage. This was announced in October. Since then there is a increase in GST revenue. So this might not be because of boost in demand and purely a process efficiency related increase.

Source: Ministry of Finance

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