Context

According to a monthly survey released, India’s manufacturing sector had a strong performance in March, supported by strong sales and production.

Purchasing Managers Index: Key Findings

• Manufacturing PMI Hits 16-Year Peak in March: 

  • The seasonally adjusted HSBC India Manufacturing Purchasing Managers Index (PMI) surged to a 16-year high of 59.1 in March from 56.9 in February.
    • In PMI terminology, a print above 50 means expansion while a score below 50 denotes contraction. 

• Reasons for Peak in PMI: 

• • The HSBC India Purchasing Managers Index (PMI) reached a 16-year peak due to notable rises in both output and new orders, marking the strongest growth since October 2020. 
    • This coincided with the second-most significant increase in input inventories in the survey’s history.
    • Employers increased their purchasing levels and employment went back to positive territory.
    • The significant improvement in operating conditions was accompanied by increased job creation, output, and input stock growth as well as stronger growth in new orders.
• The survey highlighted a slight increase in cost pressures in March, reaching the highest level in five months. 

About HSBC India Manufacturing PMI

• It is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. 
• The panel is categorized according to specific sectors and the size of company workforces, determined by their contributions to GDP.

About Purchasing Managers Index (PMI)

• About: The Purchasing Managers Index (PMI) measures the month-over-month change in economic activity within the manufacturing sector. It is an indicator of business activity, both in the manufacturing and services sectors.
  • It summarizes whether market conditions as viewed by purchasing managers are expanding, neutral, or contracting.
• Calculation: The Purchasing Managers Index (PMI) is derived by sending fact-based questions to a large number of companies in the concerned sector. 
  • For manufacturing PMI, the questionnaire is sent to manufacturing companies. 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%) and stock of items purchased (10%). 
  • The surveys are conducted on a monthly basis.
• Types of Purchasing Managers Index: There are two types of PMI — Manufacturing PMI and Services PMI. 
  • It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
• Headline PMI: The headline PMI is a number from 0 to 100. 
  • PMI above 50 represents an expansion when compared to the previous month. 
  • PMI under 50 represents a contraction. 
  • A reading at 50 à indicates no change.
• Difference from IIP: It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.
  • IIP covers the broader industrial sector compared to PMI. However, PMI is more dynamic compared to a standard industrial production index.
• PMI in India: IHS Markit produces the PMI for India. The IHS Markit India Manufacturing PMI measures the performance of India’s manufacturing sector. The index is derived after a survey of 500 manufacturing companies.
• Significance: Usually PMI is released before other indexes such as GDP, industrial output. 
  • PMI gives an idea about the direction the economy is taking and helps economists in predicting the manufacturing activity in the country. 
  • The manufacturers and suppliers use the index to decide on their production needs based on new orders in the coming months. 
  • The index also helps investors who are looking to invest in the stock markets as it helps in determining the economic health of the country.