Syllabus
GS3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Context:
India’s manufacturing sector growth strengthened in July to a 16-month high of 59.1.
More on the News
- The HSBC India Manufacturing PMI rose from 58.4 in June to 59.1 in July, marking the strongest sector growth since March 2024.
- As per the survey, overall sales rose at the fastest pace in nearly five years. Subsequently, Production growth strengthened to a 15-month high in July and outpaced the series trend.
- Indian manufacturers remained confident of a rise in output over the course of the next 12 months, but the overall level of positive sentiment fell to its lowest mark in three years.
- Indeed, outstanding business volumes increased only marginally in July.
Purchasing Managers’ Index (PMI)
- The PMI is an indicator of the economic activity in any country, derived from monthly surveys of various companies. The index reflects trends in both the manufacturing and service sector.
- The index helps in determining whether the market conditions, as seen by purchasing managers, are expanding, contracting, or staying the same.
- PMI provide information regarding the current and future business conditions.
- PMI is one of the closely watched indicators of business activity for predicting the economic activity of the country.
There are two types of PMI:
- Manufacturing PMI.
- Services PMI.
A combined index is also made using both manufacturing PMI and services PMI.
Manufacturing PMI
The PMI is derived by sending fact-based questions to a large number of companies in the concerned sector. Questions are factual in nature and there is no scope for subjective opinions.
The questions are related to 5 key variables. The variables with their weights in the index are:
- New orders (30%)
- Output (25%)
- Employment (20%)
- Suppliers’ delivery times (15%)
- Stock of items purchased (10%)
A PMI above 50 signals expansion, while below 50 indicates contraction. The rate is gauged by its distance from 50 and comparison with the previous month data.
Origin: PMI was first developed by the US-based Institute for Supply Management (ISM) in 1948.
IHS Markit produces the index for 30 other countries, including India.
The HIS index is derived after a survey of 500 manufacturing companies.
Significance of the PMI
- Assists economists in predicting the manufacturing activity in the country.
- Helps manufacturers and suppliers to decide on their production needs based on new orders in the coming months.
- Provides insights to the stock markets investors as it helps in determining the economic health of the country.