According to the most recent Purchasing Managers’ Index (PMI) data, India’s manufacturing sector activity started showing growth signs in August. This growth was primarily driven by a pick-up in production and an improvement in customer demand.
Understanding the Purchasing Managers’ Index (PMI)
The Purchasing Managers’ Index (PMI) is an important business activity indicator for both the manufacturing and services sectors. The PMI measures whether market conditions, as viewed by purchasing managers, are expanding, neutral, or contracting. It is a critical tool for company decision makers, analysts, and investors to understand prevailing and future business conditions.
PMI Data: A Snapshot
The PMI rose from 46 in July to 52 in August – this change indicates an expansion in India’s manufacturing sector activity. In fact, new business received by Indian manufacturers expanded at its fastest pace since February.
Trends Indicating Economic Recovery
Various indicators point towards a gradual recovery in economic activity. The Goods and Services Tax collection in August stood at 88% of the level recorded during the same month the previous year. The Google Mobility index, which measures visits to different locations such as retail shops, workplaces, and parks, registered a rise. Petrol consumption also rose by about 2% in the first fortnight of August from the corresponding period in July.
Factors Contributing to the Revival
The revival is due to a pick-up in demand from domestic markets, leading to upticks in production and input buying. Gradual unlocking following lockdown has increased economic resource mobilization. Marginal improvements have also been observed in exports.
Persistent Concerns: Unemployment and Inflation
Despite an expansion in new orders, job shedding continues in the Indian manufacturing sector. Rising raw material costs due to supplier shortages and transportation delays, triggered by the Covid-19 pandemic, have resulted in an inflationary trend.
Recommendations for a Resilient Economy
Several suggestions have been put forth to cope with the current economic challenges. The Atmanirbhar Bharat Abhiyan (Self-reliant India) initiative launched by the government aims to buffer those in acute distress and institute long-term reforms in growth-critical sectors.
Other recommendations include increasing the MGNREGA funding and expanding it to urban areas, cash transfers to provide immediate security and confidence, addressing issues in the banking system, tax incentivization for big business houses and the MSME sector, and calibrating the ‘Make in India’ initiative.
Focus on Sunrise Sectors and Auto-sector Reforms
In terms of re-imagining the Indian economy, focus should be given to encourage sunrise sectors such as battery manufacturing (storage systems) and solar panel manufacturing. The government can also consider promoting “Deep Tech”-leveraged businesses.
Special attention should also be given to the auto industry which contributes significantly to GDP (nearly 9%). In terms of labour law reforms, sustainable measures must be emphasized.
Each of these initiatives not only offers a route to navigate through the current economic difficulties but also holds the promise of a resilient and thriving economy in the post-pandemic world.
Last Modified: February 9, 2024