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A ray of hope in India’s PMI

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  • The return of this index to expansion territory for the first time in five months offers relief from the gloom over our economy’s performance, but we need clearer signs of revival to justify optimism

Close on the heels of Monday’s deeply worrying gross domestic product (GDP) data, there is some positive news on India’s economy. The country’s purchasing managers’ index (PMI) for the manufacturing sector has staged a smart rebound into expansion territory. At 52 in August, compared with 46 in July, the PMI has leapt above the 50 mark that separates expansion and contraction. With its first 50-plus reading in five months, the index suggests that business activity is recovering. Assembly lines that had stopped and then restarted at a snail’s pace might finally be rolling along nicely. If the momentum continues, the economy’s broader performance in the ongoing quarter could be much better than the April-June quarter, which saw overall output fall by almost 24%.

The reading also seems to reinforce what core sector data tells us. Though still in contraction, India’s eight key infrastructure industries are no longer doing as badly as in April, when they shrank nearly 38%. That rate of decline has steadily eased to under 10% in July. Going by the PMI and other signals from this survey, core sector growth could be back in a month or so.

Taken together, these indicators offer hope. Yet, caution is warranted. Even as lockdown curbs are eased, by and by, aggregate demand may remain too weak for the PMI to get much higher. Consumer confidence was found to be at a record low in July, and it’s not clear if it’s in revival mode. India’s covid affliction is not getting any lighter, what with the country hitting global highs on some counts. Also, the services sector, a big chunk of our economy, is likely to take longer to achieve any semblance of normalcy. But then, rising factory orders could have a ripple effect on other forms of commercial activity, and that’s something to look forward to.

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