- India’s manufacturing activity witnessed an unprecedented contraction in April as the lockdown to combat the rapid spread of the coronavirus led to a slump in demand and massive supply chain disruptions, according to the IHS Markit purchasing managers index (PMI) survey.
- At 27.4 in April, the seasonally adjusted IHS Markit India Manufacturing PMI fell from 51.8 in March.
- The latest reading pointed to the sharpest deterioration in business conditions across the sector since data collection began over 15 years ago.
- The decline in operating conditions was partially driven by an unprecedented contraction in output.
- Economists and global rating firms have already said economic growth is set to decline sharply below the 1 per cent level.
What is Purchasing Manager’s Index (PMI)?
- PMI or a Purchasing Managers’ Index (PMI) is an indicator of business activity – both in the manufacturing and services sectors.
- It is a survey-based measures that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction. Higher the difference from this mid-point greater the expansion or contraction.
- The rate of expansion can also be judged by comparing the PMI with that of the previous month data. If the figure is higher than the previous month’s then the econ-omy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.
- The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available. It is, therefore, considered a good leading indicator of economic activity.
- Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later. Central banks of many countries also use the index to help make decisions on interest rates.