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January 2017
The government's demonetisation move
provoked a downturn in Indian manufacturing growth in December, the first such
contraction in a year, as per key macro-economic data.
According to the Nikkei Markit India
Manufacturing Purchasing Managers' Index (PMI) -- a composite indicator of
manufacturing performance -- the withdrawal of high-value banknotes has
reportedly hit new business orders and factory output in December, with
companies signalling fewer amounts of new orders, buying levels and output.
The index fell to 49.6 in December,
from 52.3 in November, which marked the biggest month-on-month decline in the
index since November 2008 when the global economy had slipped into a severe
downturn following the financial market crash in the US.
An index reading of above 50
indicates an overall increase in economic activity, and below 50 an overall
decrease.
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"Having held its ground in
November, following the unexpected withdrawal of Rs 500 and 1,000 bank notes
from circulation, India's manufacturing industry slid into contraction at the
end of 2016," Pollyanna De Lima, Economist at IHS Markit and author of the
report said in a statement.
"Cash flow issues among firms
also led to reductions in purchasing activity and employment," she said. The Total Investment
& Insurance Solutions
De Lima elaborated that surveyed
companies widely blamed the scrapping of high-value currency for the downturn. The Total Investment
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"Cash shortage in the economy
reportedly resulted in fewer levels of new orders received," the statement
said. The
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"Concurrently, manufacturers
lowered output accordingly," it added.
Though December saw a decline in
manufacturing output, the average figure for the third quarter was above the 50
level, the report said. The Total Investment & Insurance Solutions
"Nevertheless, the average over
the October-December quarter (52.1) was broadly in line with that seen in the
July-September period (52.2)," it said.
According to the survey, cash
shortages and lower workplace activity resulted in job shedding and falling
buying levels during December. The Total Investment & Insurance
Solutions
Higher prices paid for a range of
raw materials led average cost burdens to increase for the 15th straight month
in December, with the rate of inflation picking up since November.
"With the window for exchanging
notes having closed at the end of December, January data will be key in showing
whether the sector will see a quick rebound," De Lima said.The Total Investment
& Insurance Solutions
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