Economy
What the rise in purchasing managers' index signals
Summary
With India’s composite PMI at 49.2 in July 2021, the seasonally adjusted IHS Markit India manufacturing PMI rose to a 3-month high of 55.3. The services PMI for July 2021 stood at 45.4, up from 41.2 in June 2021With India’s composite Purchasing Managers’ Index (PMI) at 49.2 in July 2021, the seasonally adjusted IHS Markit India manufacturing PMI rose to a three-month high of 55.3. The services PMI for July 2021 stood at 45.4, up from 41.2 in June 2021.
What does the index indicate?
PMI is a sentiment tracking index and an indicator of prevalent business and economic conditions in manufacturing and services sectors. It is a survey-based weighted average economic index, which measures business output (25%), new orders (30%), employment (20%), inventory levels (10%) and supply deliveries (15%). It provides information about current business activities to decision makers in the corporate sector, economists, analysts and purchasing managers. A figure above 50 for PMI denotes economic expansion, while one below 50 is indicative of contraction.
What has been the PMI trend since last year?
In February 2020, the composite PMI was 57.6, falling to 7.2 in April with the imposition of nationwide lockdown. With the staggered lifting of curbs in June 2020, the composite PMI showed signs of recovery, crossing the 50 threshold in September 2020. The August 2020 manufacturing PMI was 52.0. But services PMI crossed 50 only in October 2020. Following fresh lockdowns during the second wave, the composite PMI in May 2021 again slumped to 48.1. With the easing of curbs, manufacturing PMI rose to a three-month high of 55.3 in July, though composite PMI and services PMI are 49.2 and 45.4, respectively.
What are the other macroeconomic indicators?
Goods and services tax (GST) collections, e-way bills, consumption of petroleum products, electricity demand, rail freight traffic, packaged consumer goods sales, auto sales, and the export-import trend are some of the other key macroeconomic indicators. Unemployment levels, inflation, currency exchange rate, forex reserves are also reflective of macroeconomic situation.
What do all other indicators show?
Key macroeconomic indicators have shown a trend similar to PMI. In April 2020, GST collections and e-way bills fell to ₹32,172 crore and 8.4 million, respectively. With a staggered unlocking in June 2020, GST collections and e-way bills rose to ₹90,917 crore and 42.7 million respectively. The second wave hit the economy hard and a lot of indicators saw a decline. But in July 2021, GST collections and e-way bills saw an increase to ₹1.16 trillion and 64.1 million, respectively, while power demand was 17.6% higher than July 2020.
What could be India’s growth rate?
Domestic and international financial institutions have revised their FY22 growth projections for India following the second wave. The Reserve Bank of India and the International Monetary Fund lowered the growth forecast for FY22 to 9.5%, State Bank of India to 7.9%, and the World Bank to 8.3%. With the fear of a third wave looming large, economic recovery and growth forecasts depend on the impact of the virus and the effect of the vaccination drive.
Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.
