GST kitty swells, factory activity hits 31-month high

Data released Thursday indicated India's sustained economic momentum at the start of the new fiscal year, with goods and services tax (GST) collection growing at a rapid clip in May as manufacturing activity hit a 31-month high in the month. Vehicle and fuel sales backed up the trend.

Numbers released a day earlier on Wednesday showed the economy grew by a better-than-expected 6.1% in the March quarter, lifting FY23 growth to 7.2%, exceeding estimates.

The GST collection rose 12% from a year earlier to ₹1.57 lakh crore in May while the Manufacturing Purchasing Managers' Index (PMI) climbed to 58.7 from 57.2 in Arpil. "May PMI and GST data show that underlying momentum in the economy remains resilient, largely based on domestic factors," said Rahul Bajoria of Barclays.


Diesel demand increased 9.3% to 7.46 million tonnes in May, accelerating from April's 6.7% increase. Petrol demand grew 10.4% compared with last year.

Automobile sales remained robust with EVs continuing to post strong numbers. Auto companies dispatched 334,800 cars, sedans and utility vehicles to dealerships in May, an increase of 13.5% from last year, with market leader Maruti Suzuki posting 15.5% growth. Sales of electric two-wheelers more than doubled YoY to 104,771, breaching the 100,000 mark for the first time. "Demand conditions demonstrated remarkable strength, with factory orders rising at the fastest pace since January 2021," the S&P Global India Manufacturing PMI report said.

On Wednesday, the CII said it expects GDP to grow 6.5-6.7% in FY24. RBI expects 6.5% growth.

The continuing economic momentum will encourage the RBI to keep holding rates to gauge the impact of the 2.5 percentage point rise in interest rates since May 2022. The strong data "will add to RBI's conviction next week," said Bajoria. The Monetary Policy Committee meets June 6-8.

Robust GST
GST collections were lower than the highest-ever level of ₹187,035 crore in April, which was boosted by the year-end effect. A finance ministry statement said monthly GST revenue crossed the ₹1.5 lakh crore mark for the fifth time since the levy began in July 2017.

"...it reflects a continuation of the inherently good economic performance across states witnessed since last year," said MS Mani, partner, Deloitte India.

"With extensive department GST audits lined up before September, these figures may likely go up from here in the months to come," said Abhishek Jain, partner and national head, indirect tax, KPMG in India said.

Most states registered double-digit growth. "GST revenues in May 2022 have modestly exceeded our expectations," said Aditi Nayar, chief economist, ICRA.

Of the total, central GST was ₹28,411 crore, state GST was ₹35,828 crore and integrated GST ₹81,363 crore, including ₹41,772 crore collected on import of goods.

Manufacturing strength
A rise in advertising, demand strength and a favourable economic climate pushed factory orders to the highest levels since January 2021, the PMI survey showed. Employment growth, which has remained muted until now, also picked up.