PMI falls below 50, all thanks to demonetisation

Post demonetisation, the cash crunch has hit India's manufacturing hard and the sector dip into contraction for the first time in 2016.

According to a private survey showed PMI data for December indicated that the rupee demonetisation took a toll on manufacturing performance.

The Nikkei India Manufacturing Purchasing Managers' Index fell to 49.6 in December from November's 52.3.

A reading above 50 indicates economic expansion, while a reading below 50 points toward contraction.

"Cash shortages and lower workplace activity resulted in job shedding and falling buying levels during December,” the survey report showed.

The whole blame for the downturn was put on the withdrawal of high-value rupee notes from November 8 onwards, as cash shortages in the economy reportedly resulted in fewer levels of new orders received.

"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," guided Pollyanna De Lima, Economist at IHS Markit and author of the report.