Purchasing Managers’ Index (PMI)

India’s Composite Flash Purchasing Managers’ Index (PMI) increased to 60.6 in February 2025 marking the first rise after three consecutive quarters of decline.

Recent Trend in Purchasing Managers’ Index (PMI)

• The Composite Flash PMI showed an uptick in private sector growth.
• The index rose to 60.6 in February 2025, up from 57.7 in the previous month.
• Growth was primarily driven by a sharp acceleration in services sector activity.
• Manufacturing PMI also reported a healthy rise but at a slower pace compared to January.
  • Rapid restocking globally contributed to an increase in new goods export orders.
• Recent depreciation of the Indian rupee has boosted the competitiveness of services exports.
  • Input prices eased while output prices climbed, improving profit margins for producers.
• Employment levels increased as firms responded to elevated order-to-inventory ratios.

About PMI

• The Purchasing Managers’ Index (PMI) is an economic indicator derived from monthly business surveys.
• It is a survey-based measure that assesses changes in key business variables compared to the previous month.
• PMI helps determine whether market conditions, as perceived by purchasing managers, are expanding, contracting, or remaining stable.

How is PMI Determined?

• PMI is derived through surveys conducted among companies in the concerned sector.
• The survey contains fact-based questions related to five key variables:
  1. New Orders
  2. Output
  3. Employment
  4. Suppliers’ Delivery Times
  5. Stock of Items Purchased
• Surveys are conducted on a monthly basis to track economic trends in real-time.

Types of Purchasing Managers’ Index (PMI)

• Manufacturing PMI: This index tracks the performance of the industrial and factory sectors by measuring production levels, new orders, employment, supplier deliveries, and inventory. It provides insights into the health of the manufacturing industry.
• Services PMI: This index evaluates the growth and activity within the services sector, including industries such as finance, healthcare, IT, and retail. It assesses business activity, new orders, employment, and input costs in service-oriented businesses.
• Composite Flash PMI: This is a combined index that integrates both Manufacturing PMI and Services PMI to provide an overall picture of economic activity. It helps in understanding the broader trends in private sector performance by analyzing both industrial and service-driven growth.

PMI Interpretation

• A PMI reading above 50 indicates economic expansion.
• A PMI reading below 50 signals economic contraction.

PMI in India

• PMI surveys in India are conducted by S&P Global (previously released by IHS Markit).
• The Manufacturing PMI is based on a survey of 500 manufacturing companies.

Significance of PMI

• Early Economic Indicator: PMI is released before official industrial and GDP data, making it a key leading indicator. It is used to provide information regarding the current and future business conditions.
• Monetary Policy Tool: Central banks use PMI data to assess inflation trends and adjust interest rates accordingly.
• Investor Confidence: PMI influences stock markets, bond markets, and corporate earnings expectations.
• Economic Competitiveness: A strong PMI enhances investor confidence and improves the economic attractiveness of a nation.

Limitations of PMI

• Excludes Informal Sector: PMI does not capture informal sector activity, which is significant in many developing economies.
• Limited Scope: It focuses only on the manufacturing and services sectors, ignoring agriculture and government spending.
• Short-Term Indicator: PMI reflects monthly trends and may not accurately represent long-term economic growth.
• Survey-Based Data: Responses are subjective and may not always reflect actual business conditions.
• No Exact GDP Correlation: PMI indicates trends but does not directly translate into GDP figures.
• Excludes Employment Details: While it tracks employment trends, it does not provide comprehensive labor market data.

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