Some impact of currency demonetisation on industries was
visible in December, and even a month after, showed two sets of government
figures released on Friday. The Index of Industrial Production (IIP) fell 0.4
per cent in December, after a 5.6 per cent rise the previous month. Corporation
tax rose only 2.9 per cent in the April-January period (first 10 months) of the
current financial year, although the growth was 4.4 per cent till
AprilDecember. Excise duty collections showed similar impact—the growth was
down to 26.3 per cent in January against 31.6 per cent in December. However,
these collections also showed the impact of some fading away of the base effect
of oil duty increases. Service tax rose at a slower 9.4 per cent in January
against 12.4 per cent in December, with the slowing of discretionary
expenditure after the note ban. Though the significant IIP rise in November
seems surprising, as it was the first month of demonetisation, this was largely
due to the higher number of working days, with many festivals in October this
time, after having occurred in November during 2015. The actual test of the
note-ban was December for IIP. Manufacturing, 75.5 per cent of the index,
dragged down the industrial production. It fell two per cent in December.
However, it appears demonetisation did not affect industries that much, as IIP
was down only 0.4 per cent and the pace of contraction was teeper in April (1.3
per cent), July (2.5 per cent), August (0.7 per cent) and October (0.8 per
cent). In short, the fall in output in December was the slowest among the
months when IIP contracted this financial year — and there was no
demonetisation in the previous months. However, the index represents mainly the
organised sector. The note ban’s effect could have been much more dampening in
the unorganised part of industry. The other two segments of industry —
electricity and mining - continue to show growth. While mining output grew 5.2
per cent in December against 3.7 per cent the previous month, electricity
generation rose 6.3 per cent, against 8.9 per cent. Only basic goods industries
showed growth in December. The rest — capital goods, both kinds of consumer
goods and intermediate goods — all showed a fall in output. Even in January,
companies were struggling to come out of the woods, shown by the tax figures. The
low growth of corporate income tax, net of refunds, remains a concern. There is
growing likelihood of a shortfall relative to the revised estimate for FY17 for
corporate income tax. Part of this could be due to refunds, of ~1.41 lakh crore
during April-January, 41 per cent higher than in the corresponding period last
year. The government has projected corporation tax to yield ~493,923 crore in
the revised estimate for 2016-17. That is only ~1 crore less than the budgeted
estimate. On excise duty, February would give the real picture on collections,
as the impact of hike in duty will not be there. Service tax collection growth
also came down to single digit in January, against double digits the previous
months. This might reflect a curtailing of discretionary spending. Customs duty
collections showed a zigzag pattern. In direct tax collection, the kitty
continued to see robust growth from personal income tax. However, the growth in
the financial year fell to 23.1 per cent till January, although it was 24.6 per
cent till December.
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