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Manufacturing sector contracts amid demonetization: IHS Markit

In the aftermath of demonetization, the manufacturing sector Purchasing Managers’ Index (PMI) has fallen into the ‘contraction’ territory, data released by Markit Economics showed.

Nikkei India Manufacturing PMI contracted to 49.6 in December, down from 52.3 in November, indicative of a marginal deterioration in the health of the sector, Market Economics said.

A figure above 50 indicates expansion while a figure below 50 indicates contraction of a sector.

“PMI data fro December indicated that the rupee demonetization took a toll on manufacturing performance. Companies saw new work and output dip for the first time in 2016, in turn, quantities of purchases were scaled back and employment lowered. Meanwhile, input costs increased at a quicker rate, whereas output charge inflation eased,” a statement said.

The headline seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ IndexTM (PMITM) recorded below the crucial 50.0 threshold for the first time in 2016 during December, Markit Economics said. Four of the five sub-components of the PMI edged below 50.0, while average delivery times lengthened further. At the sector level, operating conditions deteriorated in both the consumer and intermediate goods categories, it added.

Markit Economics’ panel members widely blamed the withdrawal of high-value rupee notes for the downturn, as cash shortages in the economy reportedly resulted in fewer levels of new orders received.


““Having held its ground in November following the unexpected withdrawal of 500 and 1,000 bank notes from circulation, India’s manufacturing industry slid into contraction at the end of 2016. Shortages of money in the economy steered output and new orders in the wrong direction, thereby interrupting a continuous sequence of growth that had been seen throughout 2016. Cash flow issues among firms also led to reductions in purchasing activity and employment,” Pollyanna De Lima, Economist at IHS Markit and author of the report said.

At 1045 hours, the BSE Sensex was trading at 26,484.05, down 142.41 points or 0.53% lower from previous close.