Demonetisation drive hampers manufacturing growth in November: PMI
Mumbai, Dec 1: The government's demonetisation move has hampered the manufacturing sector's growth in November, a key macro-economic data showed on Thursday.
According to the Nikkei Markit India Manufacturing Purchasing Managers' Index (PMI) -- a composite indicator of manufacturing performance -- the withdrawal of high-value banknotes has reportedly hampered manufacturing growth in November, with companies signalling softer increases in order books, buying levels and output.
The index rose to 52.3 in November, however, lower than the 22-month high of 54.4 in October.
An index reading of above 50 indicates an overall increase in economic activity, and below 50 an overall decrease.
"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 was quoted as saying in a statement.
"However, whereas some may have anticipated an outright downturn, the sector held its ground and remained in expansion mode."
De Lima elaborated that many surveyed companies expected a further disruption in the near-term.
"The demonetisation of the rupee is anticipated to ignite growth in the long-run as unregulated companies leave the market," De Lima explained.
"Of respite to firms, cost inflationary pressures softened, which in turn encouraged the vast majority of businesses to keep their selling prices unchanged. If this trend is sustained we will likely see further cuts to the benchmark rate."
One of the key factor contributing to the downward movement in the PMI was a softer expansion in new business inflows.
"Order books rose at a moderate pace that was the slowest since July. Panellists reported higher demand from domestic as well as external clients, but indicated that growth was hampered by the money crisis," the statement said.
"The upturn in new export orders also lost some momentum in November. Manufacturing production growth slowed amid reports of cash shortages."
The PMI report showed a softer increases in output in each of the three monitored sectors, with consumer goods producers recording a sharp slowdown in growth.
"Although firms continued to step up their quantities of purchases, the rate of expansion eased from October's 14-month high," the statement pointed-out.
"Money issues was the main reason listed by respondents for the softer growth in input buying. By sector, the weakest performer on this front was consumer goods."
The macro-data revealed a divergences with regards to stock levels, as falling inventories of finished goods, contrasted with higher holdings of raw materials and semi-finished items.
"The drop in post production stocks was mainly linked by respondents to a slower expansion of output, while the accumulation in stocks of purchases was associated with buying activity growth," the statement said.
The report added that higher prices paid for a range of raw materials resulted in a further overall increase in input costs.
"Although solid, the rate of inflation eased since October. November data indicated that less than 3 per cent of firms passed rising cost burdens through to their clients, with 96 per cent of companies reporting unchanged selling prices," the statement added.
"Subsequently, the rate of charge inflation softened and was marginal."