Impact of Demonetization: Improving India’s Services PMI
India’s services PMI
According to Markit Economics, India’s services PMI stood at 51.5 in March 2017, compared to 50.3 in February 2017, meeting market expectations. It was the second consecutive month of expansion after the government’s demonetization step.
Since November 2016, when the demonetization occurred, until January 2016, India’s economy has been in the contraction zone. A level below 50 indicates a contraction zone.
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Compared to February 2017, March’s PMI number indicated an improvement in the business activity in the country (INDA) after the government’s demonetization move. New orders and production volume growth improved in March.
Most of the developed nations (EFA) such as the US (QQQ) (SPY) and Europe (VGK) (IEV) showed a contraction in manufacturing and services PMIs in the last year. However, India’s PMI figures haven’t been in the contraction zone in the past year.
The demonetization step by India’s government created a great shortage of money supply in the economy. The fall in manufacturing and services PMI in November and December 2016 occurred mostly due to the fall in domestic demand because of a shortage of money supply in the economy.
Passage of GST bill
The Indian parliament recently passed the GST (goods and service tax) constitutional amendment bill. The GST is a crucial change to the Indian economy (INDA) because it would bring a centralized, uniform tax structure in every state in the country.
Many developed countries have been following this tax structure for years, and many fund managers expect that this step could bring more investment into the economy.
In the final part of this series, we’ll see which indicators investors should look at this week.