The first evidence of the impact of demonetisation emerged as manufacturing activity eased in November from October's 22-month high with new orders seeing the weakest expansion since July.
The Nikkei India Manufacturing Purchasing Managers' index (PMI) slowed to 52.3 in November from October's 54.4.The 50-point mark separates expansion from contraction.
Several economists have cut their GDP growth forecasts to below 7% for India in the current fiscal against the backdrop of the note ban which was announced on November 8.
The government expects some disruption in the next two quarters but is confident of a growth rebound after that. Latest data showed the economy grew by 7.3% in the July-September quarter, helping India retain the tag of the fastest growing major economy in the world but demonetisation is expected to cut into growth in the months ahead.
The survey showed that one factor contributing to the downward movement in PMI was a softer expansion in new business inflows. Order books rose at a moderate pace. Panellists reported higher demand from domestic as well as external clients, but indicated that growth was hampered by the money crisis. The upturn in new export orders also lost some momentum in November.
Manufacturing production growth slowed amid reports of cash shortages. Softer increases in output were noted in each of the three monitored sectors, with consumer goods producers recording a sharp slowdown in growth.
Although firms continued to step up their quantities of purchases, the rate of expansion eased from October's 14-month high. Money issue was the main reason listed by respondents for softer growth in input buying. By sector, the weakest performer was consumer goods.