India’s manufacturing growth contracted in December as new work orders and output took a knock for the first time in 2016 after governments demonetisation move. 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 seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI) - a composite single-figure indicator of manufacturing performance - was down to 49.6 in December from 52.3 in November.
As per the report, 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. The survey participants cited shortages of money in the economy leading to fall in output and new orders, which interrupted a continuous sequence of growth that had been seen throughout 2016. Concurrently, manufacturers lowered output accordingly. Cash flow issues among firms also led to reductions in purchasing activity and employment. Businesses also highlighted challenging conditions in external markets, with a fall in new businesses from abroad ending a six-month long growth.
The survey found that higher prices paid for a range of raw materials led average cost burdens to increase for the fifteenth straight month in December, with the rate of inflation picking up since November. It also stated that with the window for exchanging notes having closed at the end of December, January data will be key in showing whether the sector will see a quick rebound. As per the report, a reading below 50 in terms of manufacturing performance indicates contraction from expansion.
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