Article:
Recent reports on the S&P Global India Manufacturing Purchasing Managers’ Index (PMI) have indicated a significant growth in the manufacturing sector in India. As per these reports, this sector has experienced its highest production growth in 13 months in December 2022. The PMI averaged at 56.3 in the October to December quarter, marking it as the most substantial in the past year. These figures suggest that the manufacturing sector is performing well and has opened avenues for job creation.
Understanding the Purchasing Managers Index
The Purchasing Managers Index (PMI) serves as a survey-based measure predominantly used to understand the changes in business variables compared to the previous month. It is employed to provide crucial information about the present and prospective business conditions to relevant company decision-makers, analysts, and investors.
PMI calculation occurs separately for both the manufacturing and services sectors. A composite index is then constructed based on these individual calculations. The PMI scale ranges from 0 to 100, where any score above 50 suggests expansion, while a score below indicates contraction. A reading at 50 denotes no change.
If the PMI of the current month is lower than that of the previous month, it indicates an economic contraction. Given that this index is released at the start of every month, it is seen as a reliable leading indicator of economic activity. IHS Markit, a global leader in information, analytics, and solutions catering to major industries that boost economies, compiles the PMI across over 40 economies globally.
The Role of S&P Global in PMI Compilation
IHS Markit is part of the larger S&P Global, which plays a crucial role in the compilation of the PMI. S&P Global is renowned worldwide for its vast scope and reach in providing imperative data to drive the world’s leading economies.
The Significance of PMI
The PMI is considered an essential indicator of economic health. As the manufacturing and services sector are key drivers of economic growth, a high PMI is interpreted as a positive sign for the economy. It suggests that both these sectors are performing well and contributing significantly to economic growth.
In contrast, a low PMI reading is seen as a negative indicator, suggesting struggling manufacturing and service sectors. These sectors may be negatively impacting the overall economic performance when the PMI is low.
A Glimpse into UPSC Civil Services Examination Questions
To understand the application of this economic knowledge, let’s look at a previous year’s question from the UPSC Civil Services Examination. “What does S & P 500 relate to?” The options were: (a) Supercomputer, (b) A new technique in e-business, (c) A new technique in bridge building, (d) An index of stocks of large companies. The correct answer is (d). The S&P 500 or Standard & Poor’s 500 is an American Stock index, regarded as the most accurate gauge of large-capital US Equities.