Demonetisation has adversely impacted manufacturing growth in November, according to a private sector survey, which added that manufacturing conditions nevertheless improved for the eleventh consecutive month.
“The withdrawal of high-value banknotes in India reportedly hampered manufacturing growth in November, with companies signalling softer increases in order books, buying levels and output,” the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) said.
The headline figure for the PMI for India was 52.3 in November, with a reading over 50 indicating an expansion in activity. “However, down from October’s 22-month high of 54.4, the latest reading pointed to a modest upturn overall,” the report added.
Cash shortage
“PMI data for November showed that the sudden withdrawal of high-value banknotes in India caused problems for manufacturers, as cash shortages hampered growth of new work, buying activity and production,” Pollyanna De Lima, Economist at IHS Markit and author of the report said. “However, whereas some may have anticipated an outright downturn, the sector held its ground and remained in expansion mode.”
The report said that the three sectors it monitored witnessed softer growth in November, with consumer goods producers recording a sharp slowdown in growth.
However, the prevailing conditions could point towards further cuts in interest rates by the Reserve Bank of India.
“Of respite to firms, cost inflationary pressures softened, which in turn encouraged the vast majority of businesses to keep their selling prices unchanged,” Mr De Lima said. “If this trend is sustained we will likely see further cuts to the benchmark rate.”
