Some green shoots emerge in September with higher PMI, GST and auto sales numbers; recovery still looks patch amid headwinds

Some Positivity in the market post improvement in PMI and GST collection in India

Unlock 5.0 guidelines have been released by the government with further relaxations that are likely to increase the economic activity. This comes at an opportune time as a number of data points give encouraging signals. Are these green shoots leading to a recovery path or we are reading too much into it? The headwinds are strong and it can be expected that the recovery would be patchy.

The Gross Domestic Product (GDP) growth of all G20 nations barring China contracted in varying proportions for Q2 of 2020, but India’s contraction figures (Q1 FY21) were alarming at 23.9 per cent quarter-on-quarter (QoQ). The contraction was highest among all major economies. It was also the highest among all G20 economies. As for China, as per the estimates given by International Monetary Fund’s (IMF) Chief Economist Gita Gopinath, the GDP grew by 12.3 per cent QoQ, on the non-annualised basis.

India follows a financial year between April and March.

A contraction of this magnitude is unlikely to happen for India, going forward. While India’s growth was already slowing down before Covid-19 started, the complete washout of the April to June quarter, with all economic activities coming to a standstill, put a serious dent. But the quarter-on-quarter growth for the July-September quarter could be starkly different and upwards.

While the cases are on the rise and the country is reporting above 70,000-80,000 cases on a daily basis, a full blown lockdown now is a distant possibility. We can assume that the economic activity will increase from here despite the existing situation.

Let us first know some of the positive economic indicators pointing towards the growth.

India recorded a higher Purchasing Managers’ Index (PMI) in September, the best in over 8 years. The manufacturing PMI increased to 56.8 in September from 52.0 in August. The uptick was on the back of new orders and production according to a monthly survey – IHS Markit India Manufacturing Purchasing Managers’ Index (PMI). The index saw a negative growth in April after remaining in the growth territory for 32 consecutive months.

The manufacturing activity saw an uptick even as the companies continued to cut staff or worked with lesser staff.

A PMI number above 50 indicates expansion in manufacturing activities while below it shows contraction.

Another important indicator was the September Good and Services Tax (GST) numbers which were up by 4 per cent at Rs95,480 cr as against the GST collections in September 2019. During the month, the revenues from import of goods were 102 per cent and the revenues from domestic transaction (including import of services) were 105 percent of the revenues from these sources during the same month last year.

With the long festive season ahead of us, the collections are likely to rise as many would want to come out and have some good time after several months of being locked into the homes.

Even the government is of the view that the collections would improve as the festive season commences. The unlocking of restaurants and multiplexes could just be the much needed trigger to improve sentiments and people in large numbers may come out as we go ahead.

The third indicator and one of the most important barometerof country’s economic situation is the automobile sales. Many top auto companies registered significant sales during this month across segments be it passenger car, Light Commercial vehicles, tractors and two wheelers. The largest passenger car company reported a 31 per cent on year increase in September 2020 along as against the 2019 figures during the corresponding month. The largest two-wheeler company in India – Hero MotoCorp also declared a 16 per cent domestic sales growth.

Moreover, the e-way bill generation in September touched the pre-Covid levels – which is another significant plus for the economy. As per the data provided by Goods and Services Network (GSTN), around 57.4 million e-way bills for transporting goods over Rs 50,000 were generated in September. This was around 300,000 more e-way bills generated in February 2020.

Under the GST regime, generation of e-way bill is mandatory for both inter-state and intra-state supply. GSTN has built indirect taxation platform for GST for taxpayers to prepare, file returns, make payments of indirect tax liabilities and do other compliances.

Apart from this, the rural economy is also showing some recovery in the wake of good monsoon along with some damage control from the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) after a sudden lockdown announcement.

While the government increased allocation for this scheme, it is not difficult to understand the limits of this scheme.


The informal sectors have taken a beating because of shockers like demonetisation and hurriedly executed GST as has been argued by many economists. The imposition of lockdown took many off-guard, especially the migrant workers. Many of them were without jobs and did not see the rationale to stay put, with no scope to earn for their livelihood.

It has also created its own share of problems. The government’s response about data on migrant labours, leaves a lot to be desired. The absence of data on key issues will be the biggest hurdle in the recovery. It may also impact the way government makes plans for pulling out the country from distress.

Several reports suggested the unemployment to be at a 45 year high in the pre-covid period. The situation has only worsened since March when the lockdown was announced. The government not having data on the job losses because of a pandemic is not only surprising but also problematic at many levels.

The consumption has been a causality amid rampant job losses. Many who have jobs are working with massive cuts. The income in hand has a direct co-relation with the consumption. The consumption of goods and services can only be augmented if people have jobs with disposable incomes in hand. The current outlook on job and consumption is pessimistic as per the Reserve Bank of India’s survey.

The IMF has already downgraded the growth prospects for global economies. It is expected that the recovery may not be substantial before 3-4 quarters from here.

The RBI governor Shaktikanta Das had said that while some economic indicators are showing signs of stabilisation, the recovery is not yet “fully entrenched”.

The September numbers should be a good platform to build on from here. But in no way can we say with certainty that the number will replicate in the following months. The higher numbers are also because of the disruption that happened over a period of several months.

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