01/03/2017, 16.51
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Manufacturing output drops following December’s demonetisation

The index measuring manufacturing’s “health” falls below 50 points. In November it was 52.3. However, the average level in the fourth quarter is the same as in the third. For most firms, cash-flow problems are blamed for drop in orders.

New Delhi (AsiaNews) – The government's decision to withdraw 500 and 1,000 rupee banknotes has provoked a downturn in Indian manufacturing growth in December.

According to the Nikkei Markit India Manufacturing Purchasing Managers' Index (PMI) – a composite indicator of manufacturing performance – the withdrawal of high-value banknotes saw the index fall to 49.6 in December, from 52.3 in November.

This marks the biggest month-on-month decline in the index since November 2008 when the global economy had slipped into a severe downturn.

"Having held its ground in November, following the unexpected withdrawal of Rs 500 and 1,000 bank notes from circulation, India's manufacturing industry slid into contraction at the end of 2016," said Pollyanna De Lima, economist at IHS Markit.

"Cash flow issues among firms also led to reductions in purchasing activity and employment," she added.

Although cash-flow issues among the 500 or so PMI firms led to reductions in purchasing activity and employment, "the average over the October-December quarter (52.1) was broadly in line with that seen in the July-September period (52.2)," De Lima explained.

An index reading of above 50 indicates an overall increase in economic activity, and below 50 an overall decrease.

The numbers are the first to measure the economic impact of Prime Minister Narendra Modi’s decision to remove high-value notes because they are the most counterfeited.

This decision though has negatively affected the middle classes and the rural population, which use cash in daily exchanges.

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