Cash crunch weighs on Nov manufacturing growth

Our Bureau New Delhi | Updated on January 16, 2018 Published on December 01, 2016



PMI skids to 52.3 in biggest month-on-month fall since March 2013; rate-cut anticipated

In the first sign of the demonetisation biting economic activity, manufacturing growth in November contracted as the cash crunch hurt consumption.

In the biggest month-to-month decline since March 2013, the Nikkei/ Markit Manufacturing Purchase Managers’ Index, a gauge of manufacturing activity, fell to 52.3 in November from 54.4 in October.

“The PMI data for November showed that the sudden withdrawal of high-value banknotes caused problems for manufacturers as cash shortages hampered growth of new work, buying activity and production,” said Pollyanna De Lima, IHS Markit economist and author of the report.

Survey respondents reported higher demand from domestic and external clients, but indicated that production growth was hampered by the money crisis. This was also listed as the main reason for softer growth in input buying. November order book expanded at the slowest pace since July.

Though manufacturing activity contracted in November, a reading above 50 indicates expansion, in fact for the 11th consecutive month. As Lima said, “...whereas some may have anticipated an outright downturn [post-demonetisation], the sector held its ground and remained in expansion mode.”

More disruptions ahead?

Many of those surveyed expected further disruptions in the near term, but Lima said that some anticipated an ignition to growth in the long-run as unregulated companies leave the market.

On the prices front, the PMI report said that there was an overall increase in input costs, but as the rate of inflation eased since October most businesses kept their selling prices unchanged.

If this trend is sustained, “we will likely see further cuts to the benchmark rate,” Lima said. The Reserve Bank of India will hold its next policy review meeting on December 7.

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Published on December 01, 2016
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