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GST dampens factory activity in July

India’s factory activity slumped to its lowest level in more than nine years in July, dragged down by disruptions to business activity following the launch of GST. July also marked the biggest month-on-month decline since November 2008, just after the collapse of Lehman Brothers triggered the global financial crisis.

The GST came into effect on July 1. It is India's most ambitious tax overhaul and is meant to unify the economy into a customs union. But ambiguous rules and a multi-rate tax structure have left firms confused on how to price their products, hurting sales. While some businesses have protested against the new sales tax, many are struggling with the new compliance requirements that require them to file at least three returns every month. Some companies see the disruptions lasting until December, which could dent near-term growth. Asia's third-largest economy grew 6.1 per cent in January-March, fast by global standards but its slowest in over two years. It will take time for businesses to adjust to the change in the tax system. An output sub-index fell to 46.3, its lowest since early 2009, from 51.7 in June. There was also a contraction in new orders.

 
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