BUSINESS

5 Bleak Numbers That Show Demonetisation Impact On The Economy

Not a pretty picture.

03/01/2017 11:14 AM IST | Updated 03/01/2017 3:51 PM IST
Rupak De Chowdhuri / Reuters

Many economists have predicted that demonetisation and the resulting cash crunch will result in lower GDP numbers, with some saying it could fall by half from the July-September 7.3 percent growth rate. While the long-term benefits of the move are still unclear, here are some early numbers that show the adverse impact of demonetisation on the economy thus far.

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 Rs 1.25 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 that separates growth from contraction since December 2015. It was also the 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.

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 per cent in November 2016 as against 6.6 per cent 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 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 per cent in November, against 6.2 per cent in the previous month while steel output rose 5.6 per cent against 16.9 per cent. 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. "

With Reuters and PTI inputs

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