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Five bleak numbers that show demonetisation’s impact on India’s economy

  • Published at 06:41 pm January 9th, 2017
  • Last updated at 06:49 pm January 9th, 2017
Five bleak numbers that show demonetisation’s impact on India’s economy

The following numbers don’t paint a pretty picture.

1. New investments fall sharply

India has seen a steep decline in new investment proposals since demonetisation was announced on November 9, according to data by the Centre for Monitoring Indian Economy, Mint reported.

The October-December quarter saw Rs1.25 trillion in new investment proposals, nearly half of what each quarter had seen in new investments in the last nine quarters.

2. Factory output plunges

India’s factory activity plunged into contraction last month as the cash crunch severely hurt output and demand, according to a survey by the Nikkei/Markit Manufacturing Purchasing Managers’ Index, which fell to 49.6 in December from November’s 52.3, its first reading below the 50 mark separates growth from contraction since December 2015.

It was also the biggest month-on-month decline since November 2008, just after the collapse of Lehman Brothers triggered a financial crisis and brought on a global recession.

The cash-driven economy saw financial services, hotels, restaurants, renting, and business activities suffer the most as consumers curbed discretionary spending

According to Pollyanna De Lima, economist at survey compiler IHS Markit: “Shortages of money in the economy steered output and new orders in the wrong direction, thereby interrupting a continuous sequence of growth that had been seen throughout 2016.”

3. Core sector growth declines, which could weaken industrial output

The impact of note ban seems to be weighing on industrial output with core sector growth decelerating to 4.9% in November 2016 as against 6.6% in the previous month, according to data released by the commerce and industry ministry.

Rating agency ICRA has said that while healthy production in the core and other organised sectors may support the growth of IIP in November: “The early evidence of the impact of the note ban on several unorganised sectors appears to be negative.”

According to the Nikkei/Markit survey, output prices rose at a subdued pace last month, while input prices climbed sharply, suggesting manufacturers had little power to pass on rising costs.

4. Monthly services activity worst since 2008

For the month of November, India’s monthly services activity fell to its lowest level since the 2008 financial crisis. The Nikkei/Markit Services Purchasing Managers’ Index sank to 46.7 in November from October’s 54.5, the first time since June 2015.

According to data provider, MHS Markit: The cash-driven economy saw financial services, hotels, restaurants, renting, and business activities suffer the most as consumers curbed discretionary spending.

5. Cash-intensive sectors hit

In addition to the services sector, cement production expanded by only 0.5% in November, against 6.2% in the previous month while steel output rose 5.6% against 16.9%.

According to Aditi Nayar, principal economist, Icra, while the slowdown in core sector growth in November 2016 has been somewhat modest, the growth of cement and steel output slowed sharply in November 2016 compared to previous month, a clear indication of the short-term impact of the note ban on domestic demand in cash-intensive sectors such as construction and real estate.

Rimin Dutt is Business Editor, HuffPost India. This article first appeared on Huffingtonpost India.