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India’s Economy Crashes After “Mind-Bogglingly Inane” Tax System Strikes Back

August 3, 2017

India’s Economy Crashes After “Mind-Bogglingly Inane” Tax System Strikes Back

With just a hint of schadenfreude, we note that, following our discussion of “how to destroy an economy”, India’s Composite PMI collapsed to 46.0 in July – its lowest on record (well below the kneejerk lows after demonetization in November) as the “mind-bogglingly inane” new tax system and demonetization efforts continue to crush the poor and feed the wealthy.

As Goldman Sachs notes India’s Nikkei Markit services PMI contracted in July after reaching a 8-month high in June, following a decline of manufacturing PMI on Tuesday. The fall was led by a significant decline in new business, suggesting a worsened business sentiment after the GST implementation on July 1.

Main points:

  • India’s Nikkei Markit services PMI contracted to 45.9 (the lowest reading since September 2013). Combined with the manufacturing PMI reported on Tuesday, the July composite PMI fell to 46.0, the lowest reading since March 2009.
  • Among subcomponents, the new business index fell the most to 45.2 (from 53.3 in June), reflecting disruptions caused by the GST.
  • As the press release from Markit Economics mentioned, “Most of the contraction was attributed to the implementation of the goods & services tax and the confusion it caused”.
  • The employment index for services fell to 48.9 (from 51.8 in June).
  • That said, the index for business expectations rose to a 11-month high to 62.3, suggesting optimism from services providers about the future once they have more clarity about the new tax system.
  • The output price index rose to 54.6 (from 51.0 in June), while the input price index moderated to 51.7.
  • Overall, PMI data for July suggest a significant drag on new business activity post the GST implementation. That said, optimism expressed by both manufacturers and services providers about the future is encouraging and suggest a potential improvement in activity once businesses adjust to the new tax system.

From 8-month highs to record lows… why does any one put any faith in the useless ‘soft’ surveys?

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