By Devika Panse
An upward shift in GDP numbering to 6.3 percent earlier this week presented an optimistic picture of the Indian economy in the months to come. According to some economic observers, this improvement marked the beginning of the revival of the economy post demonetisation and the more recent GST shock.
What is PMI?
PMI or a Purchasing Managers’ Index 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 previous month. It is calculated separately for the manufacturing and services sectors, and then a composite index is constructed.
A figure above 50 denotes an expansion in business activity. Anything below 50 indicates contraction. Higher the difference from this mid-point, greater the expansion or contraction. The rate of expansion can also be judged by comparing the present PMI with that of the previous month. If the current figure is found higher, it shows that the economy is expanding at a faster rate. If it is lower, then the growth rate is slower. A good reading enhances the attractiveness of an economy vis-a-vis another competing economy.
Recent developments
The Nikkei/IHS Markit Services Purchasing Managers’ Index fell to 48.5 points in November from 51.7 in the previous month. The November reading is the lowest since August. Accordingly, the Nikkei Composite Output Index, which maps both the manufacturing and services activity, fell from 51.3 in October to a three-month low of 50.3 in November, signalling a broad stagnation in private sector output in India.
Despite unfavourable demand conditions, service providers continued to add to their workforce numbers as the level of business sentiment in the service sector for the next 12 months rose at its sharpest pace since July. The latest PMI announced on December 1 showed that robust growth had taken place in the manufacturing sector during November.
On the prices front, input cost inflation quickened to its highest since October 2013, and, accordingly, service providers increased their average selling prices in November.
Implications
Recent developments imply that the country’s growth story will take time to pick up significantly even after economic expansion rose to 6.3 percent in the second quarter from 5.7 percent in the first one. Rise in input price inflation along with a fall in the PMI indicates that the economy, although reviving, would require significant time to stabilise further.
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