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.

Source: The Hindu 

https://www.thehindu.com/business/Industry/manufacturing-sector-growth-hits-16-month-high-in-july-on-expansion-in-output-sales/article69881700.ece https://www.business-standard.com/about/what-is-manufacturing-pmi