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GST MOP-UP POINT TO A PICKUP IN ECONOMIC ACTIVITY

Focus: GS-III Indian Economy

Why in news?

Manufacturing activity in India appeared to stabilize from historic lows and indirect tax collections bounced back in June, suggesting a slow recovery from the collapse in demand because of the coronavirus pandemic.

Recovery in sight?

  • Although manufacturing activity shrank for a third straight month in June, it was slower than the previous months.
  • The latest economic data indicate that the worst may be over and India is on the road to a slow recovery. But these assumptions will only hold if a second wave of coronavirus infections does not sweep the country.
  • The manufacturing Purchasing Managers’ Index (PMI) increased to more than 45 in June from around 30 in May, signalling faster normalisation in factory activity since the lockdown measures were eased.
  • Several indicators including improved tractor sales and a normal monsoon suggest that the economy may gather further momentum.

Role played by tax collection

  • Separately, data released by the finance ministry showed that gross GST receipts for June was just 9% below the roughly ₹1 trillion collected in the same month a year ago.
  • While June showed a big improvement from what was collected in the previous two months, it is hard to decipher a month-wise revenue trend, given that the government has eased the tax payment schedule with an interest waiver, a big relief to businesses short of cash.
  • An official statement from the finance ministry said GST collections for the June quarter was 59% of the revenue collected in the same quarter a year ago, which to some extent, irons out the uncertainties in monthly figures.

-Source: Livemint

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