India’s manufacturing industry has seen significant growth in October 2020, which is considered the strongest growth in the last 13 years. This rise is noted by the IHS Markit India Purchasing Managers’ Index (PMI) and is backed by robust sales growth.
Substantial Rise in PMI
The headline seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) escalated from 56.8 in September to 58.9 in October. This increase points out the most substantial improvement in the sector’s health in over a decade. Notably, this advancement is observed for the third consecutive month. The index had previously fallen into a contraction mode in April, after being in the realm of growth for 32 consistent months. In PMI terms, a print above 50 denotes expansion, while below it signifies contraction.
Noteworthy Development in NIBRI
Simultaneously, the Nomura India Business Resumption Index (NIBRI) has also shown significant enhancement. It rose by 2.1 points, reaching 82.4 in October from 80.3 in September and 73.6 in August. This index serves as a weekly tracker of the pace of normalization of economic activity by the Japanese brokerage.
Significant Factors driving Growth
A considerable upturn in sales since mid-2008 appears to be a significant factor contributing to this growth. There has been an observable surge in e-way bills (electronic permits for goods movement) in October, implying more goods have been transported both within and across states. Additionally, new export orders have had a faster rise, marking the fastest rate in nearly six years.
Improvement in IIP
The index of industrial production (IIP) contracted 8% on a year-on-year basis in August, signifying a marginal improvement compared to July when output had contracted by 10.8%.
Pertinent Concerns
Concurrently, there have been concerns regarding employment reductions. Fulfilling government guidelines related to the Covid-19 pandemic has led to further employment cuts, marking the seventh consecutive reduction.
Understanding the Purchasing Managers’ Index (PMI)
The PMI is an indicator of business activity in both manufacturing and services sectors. It’s computed separately for these sectors before creating a composite index. The PMI informs whether markets are expanding, neutral, or contracting as perceived by purchasing managers.
The headline PMI ranges from 0 to 100. A PMI above 50 signifies expansion compared to the previous month, under 50 represents contraction, and a reading at 50 indicates no change. As it is typically released at the start of every month, it serves as a reliable leading indicator of economic activity.
This crucial index is compiled for more than 40 global economies by IHS Markit, a worldwide leader in providing information, analytics, and solutions for major industries and markets that power economies.
