A worker grinds a metal gate inside a furniture manufacturing factory in Ahmedabad (Reuters) Representative image
New Delhi: India’s manufacturing sector took a beating in December, the first full month after the demonetisation drive took effect, dipping below the crucial 50-mark indicating a contraction.
The India manufacturing purchasing managers’ index registered 49.6 in December, down from 52.3 in November. A reading below 50 indicates a contraction. This is the first time in 2016 that manufacturing activity has shown a contraction.
The PMI is compiled every month from questionnaires sent to executives in over 400 industrial units including basic metals, chemicals & plastics, electrical & optical, food & drink, mechanical engineering, textiles & clothing, timber & paper and transport. The survey is done by IHS Markit, a firm that publishes market data and financial analytics. The data was collected from December 6-16.
Four of the five sub-components of the PMI edged below 50 as purchases by industries were scaled back and employment declined. Input costs increased at a quicker rate, while average delivery times lengthened. Respondents said that cash shortages in the economy resulted in fewer orders, which led to manufacturers lowering output accordingly.
“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,” Pollyanna De Lima, an economist at IHS Markit, wrote in a note.
“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.”