Manufacturing sector slips into contraction on cash crunch

Source: The Hitavada      Date: 03 Jan 2017 09:23:28


Jan 2,


HIT hard by the demonetisation move, the manufacturing sector plunged into contraction in December -- the first shrinkage in a year -- as cash crunch took its toll on new business orders and factory output, a monthly survey showed Monday. The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) -- which measures manufacturing sector activity -- fell to 49.6, down from 52.3 in November.

The index slipped below the crucial 50 threshold -- which separates contraction from expansion -- for the first time since December 2015. This also marked the biggest month-on-month decline in the index in over eight years or since November 2008 when the global economy had slipped into a severe downturn post Lehman collapse.

“Having held its ground in Nov, following the unexpected withdrawal of Rs 500 and 1,000 banknotes from circulation, India’s manufacturing industry slid into contraction at the end of 2016,” said Pollyanna De Lima, Economist at IHS Markit and author of the report. Lima added that “cash flow issues among firms also led to reductions in purchasing activity and employment”.

Survey participants widely blamed the withdrawal of high-value rupee notes for the downturn as cash shortage in the economy reportedly resulted in fewer levels of new orders. Businesses also highlighted challenging conditions in external markets, with a fall in new businesses from abroad ending a six-month long growth.