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The S&P Global India Manufacturing Purchasing Managers’ Index (PMI) fell to 54 points in March from 54.9 points in February. Mint takes a detailed look at the numbers and what’s dragging down business confidence.

What does the March reading indicate?

The March PMI data showed that India’s manufacturing activity grew at one of the slowest pace in the last six months, as inflationary pressures resulting from the geopolitical situation dampened business confidence, which was recovering with the Omicron variant of coronavirus receding. High prices slowed  down growth  in  fresh  orders and impacted production. Manufacturers reported higher prices paid for chemicals, energy, fabric, foodstuff, and metals, even as the report pointed out that the rate of increase in input costs remained below levels seen at the end of 2021. Export orders were also hit.

Are rising prices impacting demand?

The sharp volatility and escalation in crude oil prices and other commodities, including edible oil and fertilizers, are transmitting into domestic inflation. State-run oil marketing firms on Tuesday hiked fuel prices by 80 paise for the 13th time in the last 15 days, taking the total increase in prices to 9.20 per litre. The Russia-Ukraine war has driven up prices of steel, nickel, and aluminium, with manufacturers starting to revise output prices. The PMI report said demand will be impacted if global oil and commodity prices remain high. The concern over price pressures was a key factor dragging down business confidence to a two-year low, it said.

Downward trend
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Downward trend

And how is PMI data compiled?

PMI is compiled from responses to questionnaires sent to around 400 manufacturers. The reading varies between 0 and 100. A number above 50 indicates growth and one below 50 a decrease. PMI is a weighted average of new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%), and stocks of purchases (10%).

What does domestic inflation data show?

Retail inflation data for March will be released on 12 April, but data for February saw retail inflation rising to an eight-month high of 6.07% led by high prices of food and manufactured goods. It remained over the Reserve Bank of India’s upper tolerance band of 6% for the second month in a row. Wholesale inflation rose to 13.11% in February, staying in double digits for the 11th consecutive month following a spike in prices of energy, metals, and chemicals. This is expected to reflect in the consumer price index inflation with a lag.

Is PMI comparable with other data?

PMI is a month-on-month tracker and is a survey-based index, contrary to other official indices of India, including the index of industrial production (IIP) and the index of eight core industries, which track actual production and growth on a year-on-year basis. That makes PMI non-comparable with data released by the Centre. It is an important high frequency indicator, now used by the finance ministry to monitor the economy and take policy decisions. Besides, IIP comes with a severe lag, with the January data pointing at a marginal recovery in growth to 1.31%.

 

 

 

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