A month after the government decided to demonetise high value currency, the index of industrial production (IIP) contracted by 0.4 per cent in December 2016 and manufacturing growth dipped by 2 per cent.

The index, which is a considered a bellwether of factory output, had grown by a robust 5.6 per cent in November 2016.

However, it had contracted even more sharply by 0.9 per cent in December 2015.

“The cumulative growth of the IIP for the period April and December 2016 over the corresponding period of the previous year stands at 0.3 per cent,” said the Central Statistics Office (CSO) on Friday.

Data released by the CSO revealed that electricity production grew 6.3 per cent in December and mining sector production increased by 5.2 per cent.

The sectors grew by 3.2 per cent and 2.8 per cent respectively a year ago.

Negative zone According to CSO, 17 of the 22 industries in the manufacturing sector have shown negative growth during the month of December 2016 with office, accounting and computing machinery showing the highest negative growth of 23.9 per cent followed by other transport equipment that declined by 22.9 per cent.

In used-based classification, both capital and intermediate goods registered a contraction by -3 per cent and -1.2 per cent respectively in December 2016 though basic goods grew by 5.3 per cent.

In contrast, capital goods had contracted by 18.6 per cent in December 2015, while intermediate goods and basic goods had expanded by modest 1.5 per cent and 0.7 per cent respectively.

Meanwhile, people also seem to have postponed discretionary purchases post the currency squeeze and the growth in consumer goods dipped by 6.8 per cent in December last year as against 3.2 per cent growth a year ago.

While durables dipped by 10.3 per cent, non-durables declined by 5 per cent.

Citing higher tax figures, Finance Minister Arun Jaitley had earlier down played the impact of the note ban but economists said that IIP data for December confirms that it has impacted economic activity.

“When the IIP data for November 2016 was released and it gave relief to the government and it was claimed that demonetisation has not been as disruptive as it has been made out to be. However, the December 2016 data deflates this claim,” said Sunil Sinha, Principal Economist, India Ratings.

The data come soon after the Reserve Bank of India and the Union Budget remained cautious about growth prospects in 2016-17 after the decision to scrap old series ₹500 and ₹1,000 notes but have hoped that growth will bounce back in 2017-18.

The RBI, in its bi-monthly monetary policy review earlier this year pegged GVA growth for the fiscal at 6.9 per cent and decided to maintain status quo on policy rates while it assesses the impact of demonetisation on inflation and output.

The CSO had pegged GDP growth at 7.1 per cent for the fiscal.

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