Skip to main content

Services PMI contracts as GST hits demand

Services PMI contracts as GST hits demand
Services, the biggest sector of the Indian economy, contracted in November because of the goods and service tax (GST) affecting demand, shows the widely tracked Nikkei purchasing managers´ index (PMI). The PMI fell to 48.5 points in November from 51.7 in the previous month.The November reading is the lowest since August
A reading above 50 points denotes expansion and one below that is contraction.This implies that the country´s growth story will take time to pick up significantly after economic expansion did rise to 6.3 per cent in the second quarter, from 5.7 per cent in the first one.
Even then, the Reserve Bank of India might not cut its policy rate on Wednesday because input prices are rising.However, the employment situation gave relief as jobs rose in the services sector.“Business under performance emanated from the GST, which contributed to sluggish demand andalower customer turnout, according to an ecdotal evidence,” said Aashna Dodhia, economist at IHS Markit and author of the report.
Despite unfavourable demand, service providers continued to add to their workforce numbers as business sentiment in the services sector for the next 12 months rose at the strongest pace since July.The services PMI follows the manufacturing one, which showed robust growth during November.
Accordingly, the Nikkei Composite Output Index, which maps both manufacturing and services, fell from 51.3 in October to a three-month low of 50.3 in November, signalling broad stagnation in private sector output.On prices, input cost inflation quickened to its fastest since October 2013, and, accordingly, service providers increased their average selling prices in November.
“That said, cost pressures further intensified at service firms (fastest inflation since October 2013), which could constrain output growth in the near term and reduce any central bank appetite to reduce interest rates,” Dodhia said.Besides food and fuel costs, higher taxation led to an increase in overall input prices.
India Inc, however, is demanding interest rate cuts to further build on the positive sentiment generated by the rebound and upgrade of the country´s sovereign rating by Moody´s.
The Business Standard, New Delhi, 6th December 2017

Comments

Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Firms with sales below Rs.50 crore out of ambit

The tax department has reiterated that the PoEM rules, which require foreign firms to pay taxes in India if the effective control is here, will not apply to companies withaturnover of Rs.50 crore or less inafinancial year. Last month, the tax department had come out with the longawaited Place of Effective Management (PoEM) rules, which require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes if their businesses are effectively controlled by Indians. Then the rules did not setathreshold above which they were to apply. However, the accompanying press release states that the rules will not apply to companies withaturnover of up to Rs.50 crore inayear. That created confusion whether the threshold will be adhered to. Inacircular to clarify things, the Central Board of Direct Taxes (CBDT) said the provision "shall not apply toacompany havingaturnover or gross receipts of ~50 crore or less inafinancial year".

PoEM rules essentially target shell …