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India’s Manufacturing Sector records the best uptick in Output: PMI

India’s Manufacturing Sector records the best uptick in Output: PMI

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As per the S&P Global, India Manufacturing Purchasing Managers’ Index (PMI) moved up from 55.3 in October to 55.7 in November, indicating that India’s manufacturing sector recorded the best uptick in output and new orders since August.

About Purchasing Managers’ Index:

  • Purchasing Managers’ Index (PMI) is an indicator of business activity, both in the manufacturing and services sectors. It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
  • PMI is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
  • Such resurgence in manufacturing sentiments is because of notable improvement in international demand for goods and expansion of new export orders.

How is the PMI calculated?

  • The S&P Global India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.
  • Executives are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
  • Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.

How does one read the PMI?

  • PMI is indicated by a number between 0 and 100. A score above 50 means expansion while a score below 50 denotes contraction. A reading at 50 indicates no change.
  • Higher the difference from 50 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 economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

What is the significance of PMI for the economy?

  • It provides a reliable expectation of how an economy is doing as a whole and manufacturing in particular.
  • PMI is considered as a leading indicator of economic activity and is a good gauge of boom-and-bust cycles in the economy.
  • Central banks of many countries also use the index to help make decisions on interest rates
  • A good reading of PMI enhances the attractiveness of an economy vis-a-vis other competing economies.

Source:

https://www.thehindu.com/business/Economy/manufacturing-output-orders-rebound-in-november-sp-global-pmi/article66208739.ece/amp/

https://economictimes.indiatimes.com/news/economy/indicators/what-is-purchasing-managers-index-pmi/articleshow/6259031.cms

 

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