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Manufacturing sector dips into contraction in India

Staff Writer | January 3, 2017
PMI data for December indicated that the rupee demonetisation took a toll on manufacturing performance.
India manufacturing
Economy in India   Nikkei India Manufacturing PMI
Companies saw new work and output dip for the first time in 2016. In turn, quantities of purchases were scaled back and employment lowered.

Meanwhile, input costs increased at a quicker rate, whereas output charge inflation eased. The headline seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ IndexTM (PMITM) recorded below the crucial 50.0 threshold for the first time in 2016 during December.

Down from 52.3 in November to 49.6, the latest reading was indicative of a marginal deterioration in the health of the sector. Nevertheless, the average over the October-December quarter (52.1) was broadly in line with that seen in the July-September period (52.2). Four of the five sub-components of the PMI edged below 50.0, while average delivery times lengthened further.

At the sector level, operating conditions deteriorated in both the consumer and intermediate goods categories.

Panel members widely blamed the withdrawal of high-value rupee notes for the downturn, as cash shortages in the economy reportedly resulted in fewer levels of new orders received. Concurrently, manufacturers lowered output accordingly.

Rates of contraction in new work and production were marginal overall, but in both cases the reductions were the first in 2016. Businesses also highlighted challenging conditions in external markets, with a fall in new business from abroad ending a sixmonth sequence of growth. â–