The Reserve Bank of India’s monetary policy report, released on Thursday, says “with the accelerated pace of remonetization, discretionary consumer spending held back by demonetization is expected to have picked up from Q4:2016-17 and will gather momentum over several quarters ahead”.
That is borne out by the Nikkei India Composite PMI index, a gauge of private sector economic activity in both manufacturing and services, which moved up to 52.3 in March from 50.7 in February. A reading above 50 indicates expansion from the previous month, while one below 50 denotes contraction. As Chart 1 above shows, the composite PMI is now well off the depths plumbed in December.
Will the expansion continue?
Yes, if the improvement in new business is any guide. Chart 2 shows that the Nikkei new business indices, both for manufacturing and services, moved up sharply in March. True, this yardstick is still below the levels reached last October, before demonetization took the wind out of the economy’s sails, but the recovery is well and truly underway.