Economy News

Opinion: How PM Narendra Modi’s demonetisation has nipped Indian economy in the bud?

Opinion: How PM Narendra Modi’s demonetisation has nipped Indian economy in the bud?


Falling manufacturing output, decline in bank credit and consumption demand is a clear indication how Indian economy has been hit by the Prime Minister’s note ban in the country.

Not other than the government is saying that core sector data and manufacturing PMI numbers for December have fallen after the demonetisation move by PM on November 8, 2016.

Manufacturing output

“The growth in eight core sectors, which constitute 38% of the Index of Industrial Production (IIP), slowed to 4.9% in November as compared with 6.6% increase in October and 5.01% in September,” core sector data released by the government agency said.

Moreover, the PMI also dropped to 49.6 in December as against 52.3 in November, which is the slowest growth in the manufacturing sector in 2016.

If you see the November core sector data, it has knocked down the growth of cement and steel by 0.5% and 5.6 % respectively.

The data is itself screaming that the construction segment has been severely impacted by the note ban resulted cash crunch.



Refinery products growth has also toppled in the month to 2% from 15.1%, signalling poor demand after demonetisation.


Fertilizers grew at 2.4 % from 0.8 %, coal grew in November at 6.4 % vs a negative 1.6 % in the preceding month and electricity that grew at 10.2 % in comparison to 2.8 % in October. This is surprising to see the jump in electricity given the slowdown in other segments.


The November IIP numbers may come weak and the slowdown could extend to a few more months till the cash crunch eases.

Bank Credit

According to the RBI data on bank credit trends, non-food credit has almost halved to 4.8% in November from 8.8 % in the same period a year ago, slower than October, when credit rose 6.7%. Lending to industries contracted by 3.4% in contrast with an increase of 5% in the year-ago month.

Going by the numbers, significant slowdown in economic activities should worry the government. Despite the expected long-term gains of demonetisation, there is an actual problem to deal with in the short-term. 

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