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  • Raghav Sand

Indecon: January 2021

The Indian economy is giving mixed signals month after month. It is in the process of making recovery from the damage caused by cyclical forces and the COVID-19 pandemic . The annual gross domestic product (GDP) is on course to witness a contraction, while goods and services tax (GST) collections, foreign portfolio investment (FPI) and foreign direct investment (FDI) have been the notable outliers. Indecon (India plus economy) is a monthly feature, where it is our endeavour to decipher key economic developments and statistics from the past month / quarter.


GST Collection for December 2020


The gross GST revenue collected in the month of December 2020 was ₹1,15,174 crore. In line with the recent trend of recovery in the GST revenues, the revenues for the month of December 2020 were 12% higher than the GST revenues in the same month last year. During December 2020, revenues from import of goods was 27% higher and the revenues from domestic transaction (including import of services) was 8% higher than the revenues from these sources during the same month last year.


The GST revenues during December 2020 have been the highest since the introduction of GST and it is the first time that it has crossed ₹1.15 lakh crore. The highest GST collection till now was ₹1,13,866 crore in the month of April 2019. The December 2020 revenues were significantly higher than last month’s revenues of ₹1,04,963 crore. It is the highest growth in monthly revenues since last 21 months.


This growth has been due to combined effect of economic recovery post pandemic and the nation-wide drive against GST evaders and fake bills along with many systemic changes introduced recently. The chart below shows trends in monthly gross GST revenues during the current year.

Consumer Price Index Inflation


The CPI inflation for the month of December 2020 continued its downward spiral and settled at 4.59 per cent. In November 2020 CPI was at 6.93 per cent and the cooling down was on expected lines due to seasonal moderation in food prices and easing of supply chain disruptions. Severe winter and farm law protests may marginally affect the January 2021 CPI, but for most part of the country, inflation is well with in the desired range. Liquidity in the economy has not kept pace with expectations, and the Government should take sector-specific measures.


Manufacturing Purchasing Managers’ Index


The health of the Indian manufacturing sector continued to strengthen in December, with manufacturers stepping up production and input buying amid efforts to rebuild their inventories following business closures earlier in the year. While firms were able to lift input stocks, and did so at the quickest rate in nearly a decade, holdings of finished goods decreased sharply due to ongoing increases in new operations. Meanwhile, raw material scarcity at suppliers caused delivery delays and the fastest rise in input costs for over two years.


The seasonally adjusted PMI was at 56.4 in December, a tick higher than November’s reading of 56.3 and above the critical 50.0 threshold for the fifth straight month. New export orders increased at the slowest pace in the last quarter.

Employment decreased in December, thereby stretching the current sequence of job shedding to nine months. Companies stated that government guidelines to have employees working only on shifts and difficulties in finding suitable staff were the key factors causing the latest fall in payroll numbers. However, the pace of contraction was moderate and the weakest in the current downturn period.


Indian manufacturers maintain an upbeat view that output will increase in the coming year. However, the degree of optimism weakened to a four-month low as some firms were concerned about the lasting effect of the COVID-19 pandemic on the global economy.


Services Purchasing Managers’ Index


The services PMI growth rate in December 2020 softened as compared to November, but was still in positive territory. Price data showed a pick-up in input cost inflation, the strongest since February 2020, but a renewed fall in selling prices as some firms sought to beat competition and secure new work.


Posting 52.3 in December, the seasonally adjusted India Service Business Activity Index highlighted output growth for the third month in a row. However, falling from 53.7 in November, the latest figure pointed to the slowest pace of expansion over the aforementioned sequence.


Foreign Portfolio Investment and Sensex


Indian capital market witnessed huge outflows in the month of March and April 2020. This was an unprecedented time for the economy in general. The net investment by foreign investors in the Indian debt market remained in negative territory for eight months in the calendar year 2020.


FPIs made the most of relaxed monetary policies in their domestic markets and pumped large sums in August – it helped the Indian market scale lost ground. The net FPI in November and December was almost three times the total of previous ten months. Mutual Funds received record inflows as investors tried to make sense of the uncertainty in the economy.

The union budget is a big reset event in the Indian economy. Almost every fiscal and monetary policy measure revolves around the broad guidelines laid out in the speech of Finance Minister. The union budget for 2021 will be the first paperless budget of independent India, but it cannot afford to be a clueless one.


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