GST Effects on Factory Production in India

According to the recent survey done by a private firm on Tuesday, it is disclosed that the history of nine years India’s factory production level fallen in July 2017, due to the implementation of Goods and Services Tax (GST).

As per The Nikkei/IHS Markit Manufacturing Purchasing Managers’ Index (PMI), the production was down from 50.9 to 47.9 in the month of July. It happened the first time that the reading of production level in factories below 50 mark, and the worst data figures since February 2009 as well as separates growth from contraction.

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Reuters experts had anticipated minimum changes in the growth rate. The figures came out one day ago before the meeting of Reserve Bank of India’s (RBI) rate. It is anticipated that the Central Bank Monetary Policy panel to reduce the repo- rate by 25 basis points by an increased up of 6-1/2 year low.

Shilan Shah, India economist at Capital Economics, said: “One month’s data alone wouldn’t have a significant bearing”. He further added that “We expect conditions to improve as firms get familiar with the new system.”

The new indirect regime was implemented on 1st July across the country. It is touted as the biggest tax reform since Independence and combines the $2 trillion economies into a common unified market.

Due to complex taxation rules and multiple tax rate structures in the indirect tax regime, firms are in a confused state of mind how they price their products and also influenced their sales.

Some industries, business enterprises are protesting against the new national sales tax, whereas some are troubling with new complex taxation rules that they have to file three returns every month.

Some companies are able to understand the interruptions till December, which could increase the growth of Asia’s third largest economy by 6.1 percent in the duration of January- March as per global standards but slow down in over two years.

R. Shankar Raman, Chief Financial Officer at Larsen & Toubro, said: “I would think even August will also show lower than expected PMI because it will take time for businesses to adjust to the change in the tax system.”

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  • Sanjive

    The GST regime has HIT the Garment Export Industry regarding the EPCG system of Importing Capital Goods for Exports.
    Earlier Tax Free /Duty Free but now the import will attract GST @ 12 – 18% which will be non refundable , however the same will be added to the Input Credit. What good is the input credit for us when we cannot avail it being 100% Exporters.
    We are seriously lagging behind in competition from countries like Bangladesh , Cambodia , Chine etc and now the expensive Capital Goods will add to the cost.