Manufacturing activity contracted for the first time in a year in December, as demonetisation curbed new orders as well as output of companies, according to the Nikkei Purchasing Managers’ Index (PMI) survey, reports reports fe Bureau in New Delhi.
Manufacturing activity contracted for the first time in a year in December, as demonetisation curbed new orders as well as output of companies, according to the Nikkei Purchasing Managers’ Index (PMI) survey, reports reports fe Bureau in New Delhi. Purchases witnessed a slowdown and companies trimmed jobs, albeit marginally. The second straight month of slowdown in December after the index rose at the fastest pace in almost four years in October indicates demonetisation — announced on November 8 — applied the brakes on manufacturing just when things started looking up. Sales of leading car and two-wheeler manufacturers declined in December compared to the same month a year ago as demonetisation forced consumers to postpone purchases.
The headline manufacturing PMI touched 49.6 in December, compared with 52.3 in the previous month.
Any reading above 50 indicates expansion, while the one below that suggests contraction. Four of the five sub-components of the index (such as new orders, output, employment, suppliers’ delivery time and stock of items purchased) contracted in December. Input costs accelerated at a faster pace than charges for output. This suggests companies couldn’t entirely pass on the rise in input costs (driven by an increase in global commodity prices), as the cash crunch dented consumer demand.
PMI for services for November already witnessed the sharpest monthly plunge since November 2008 (just after the Lehman crisis). The December services PMI data will be released on Wednesday, amid indications that the cash crunch has hit the services sector harder than manufacturing.
“As the slowdown in end use manufacturing products will find reflection both in intermediate and basic goods in the coming months, manufacturing PMI will remain under pressure in the near term. Clearly, the disruption demonetisation has caused in not confined to the cash dependent unorganised sector only as was believed earlier, it has severely impacted even the organised manufacturing sector,” said Sunil Kumar Sinha, principal economist, India Ratings & Research.
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December is usually a month when automakers post robust growth as discounts are high since consumers don’t prefer older manufacture date vehicles in the new year. However, this year large factory despatches to dealers was not possible because retail sales were tepid since November on account of weak sentiments due to demonetisation. Still, factory despatches in November was high because dealers were left with low inventories after good sales during October. In December, however, both factory despatches and retail sales were low.