Indian Economy recovering from Demonetisation

The Nikkei Purchasing Managers’ Index for the month of January 2017 shows slow recovery of the Indian economy from the high value currency note cancellation impact of November 2016. While the economy has not yet recovered fully from the adverse effect of currency ban but the very fact that it is on a recovery mode gives the impression that remonetisation effort has proved effective.

The Nikkei Manufacturing PMI in India rose to 50.4 in January of 2017 from 49.6 in December. This is marginally higher than the market consensus expectation of 50.2. As revealed by a survey of 500 manufacturing companies output and new orders went up and buying activity increased amid improving business confidence. Meantime, new export orders fell slightly. As regards new job creation the scenario remained negative with companies failing to generate jobs. Backlogs rose at a faster pace and input cost inflation climbed to its highest mark since August 2014 while output charges were raised for the eleventh successive month. Manufacturing PMI in India averaged 51.87 from 2012 until 2017, reaching an all-time high of 55 in June of 2012 and a record low of 48.50 in August of 2013. Clearly India is long way off from the record level of Manufacturing PMI reached in 2012 though it is close to the level of world PMI of 50.9.

The Nikkei Services PMI in India, though improved from the level seen in December 2016, continued to remain on contraction mode. It came in at 48.7 in January of 2017, up from 46.8 in December. It was the third straight month of contraction but the smallest in the current sequence of decline. Output fell the least in three months and new orders decreased less than in a month earlier while employment rose marginally amid improving business sentiment. Meantime, work-in-hand increased for the eighth straight month. Input cost inflation slowed marginally, whereas average selling prices decreased again.

Services PMI in India averaged 51.47 Index Points from 2012 until click here 2017, reaching an all-time high of 57.50 Index Points in January of 2013 and a record low of 44.60 Index Points in September of 2013. The services sector needs to be boosted further in order to at least recover the lost average ground due to the November note ban. Indian service sector PMI is much lower than the world service PMI of 52.80 seen in January.

Our Principal Deepak Talwar felt that “the slowdown caused by demonetisation seems to have stopped, though it requires continued effort to get growth back to the level prevailing before the note ban. This is reflected in the higher business confidence index of 57.20 in January 2017 as against an index of 54.10 in December 2016.” Deepak Talwar further stated, “With index for industrial production rising by 5.7% against a fall of 1.8% in the previous month, services, too, will soon pick up as a consequence.”

The Nikkei India Manufacturing Purchasing Managers’ Index measures the performance of the manufacturing sector and is derived from a survey of 500 manufacturing companies. The Manufacturing Purchasing Managers Index is based on five individual indexes with the following weights: New Orders (30 percent), Output (25 percent), Employment (20 percent), Suppliers’ Delivery Times (15 percent) and Stock of Items Purchased (10 percent), with the Delivery Times index inverted so that it moves in a comparable direction. A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction; while 50 indicates no change.

The Nikkei India Services PMI (Purchasing Managers’ Index) is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 350 private service sector companies. The index tracks variables such as sales, employment, inventories and prices. A reading above 50 indicates that the services sector is generally expanding; below 50 indicates that it is generally declining.

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