Demonetisation weighs on manufacturing

Wednesday 07th December 2016 05:35 EST
 
 

In the very first proof of the impact of demonetisation, manufacturing activity appeared to have eased in November from October's 22-month high with new orders seeing the weakest expansion since July. The Nikkei India Manufacturing Purchasing Managers' Index slowed to 52.3 in November from October's 54.4.

The 50-point mark separates expansion from contraction. "PMI data from November showed that the sudden withdrawal of high-value banknotes in India caused problems from manufacturers, as cash shortage hampered growth of new work, buying activity and production," said Pollyanna De Lima, economist at IHS Markit. "However, whereas some may have anticipated an outright downturn, the sector held its ground and remained in expansion mode. Although many companies which were surveyed commented that further disruption is expected in the near-term, the demonetisation of the rupee is anticipated to ignite growth in the long-run as unregulated companies leave the market."

Many economists cut their GDP growth forecasts to below 7 per cent for India in the current fiscal against the backdrop of the note ban which was announced on November 8. While the government expects some disruption in the next two quarters, it is confident of a growth rebound after that. Manufacturing production growth slowed amid reports of cash shortages. Softer increases in output were noted in each of the three monitored sectors, with consumer goods producers recording a sharp slowdown in growth, the survey showed. While firms continued increase their quantities of purchases, the rate of expansion eased from October's 14-month high.


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