The recent IHS Markit India monthly survey has depicted a sharp decline in the Manufacturing Purchasing Managers’ Index (PMI). As of April 2020, the PMI fell to 27.4 from 51.8 in March 2020 due to national lockdown restrictions arising from the COVID-19 pandemic. This has led to a significant contraction in India’s manufacturing sector activity with new business orders collapsing at an unprecedented rate, thus harshly affecting the demand.
Unprecedented Deterioration in Business Conditions
The impact of the plummeting demand has resulted in manufacturers drastically reducing staff numbers. Enhanced by the national lockdown constraints, this predicament marks the steepest deterioration in business conditions across the manufacturing sector since data collection began over 15 years ago. Alongside domestic issues, export orders have also experienced a severe downturn.
Response to the Lockdown Disruption
Lockdown measures have not only disrupted the demand side but also created supply-side disruptions. After consistently showing growth for 32 consecutive months, the PMI has slipped into a contraction mode. A PMI reading above 50 indicates expansion, while a score below that signifies contraction.
Post-lockdown Recovery Projections
Despite the current despair in the business climate, the 12-month outlook for production purports that demand will rejuvenate once the COVID-19 threat lessens and lockdown restrictions are alleviated. As per PMI language, the index, compiled by IHS Markit for over 40 global economies, has faith in the recovery post-pandemic.
Purchasing Managers’ Index: A Quick Overview
The PMI is a significant business activity indicator in both the manufacturing and services sectors. It offers valuable insights about current and future business conditions to decision-makers within companies, analysts, and investors. Released at the start of every month, the PMI is a noteworthy leading indicator of economic activity.
Index of Industrial Production: An Overview
The Index of Industrial Production (IIP) is another crucial index showing the growth of various sectors of an economy, such as mineral mining, electricity, manufacturing, etc. The National Statistical Organisation publishes it monthly. Although similar to PMI, it’s different in the sense that while PMI senses dynamic trends because of the variable it uses, IIP uses volume-based production indicators.
Deciphering the Difference between PMI and IIP
Though both the PMI and IIP aim to measure the level of activity in the economy, significant differences exist between them. IIP provides a broader insight into the industrial sector as compared to PMI, and shows changes in production volume in major industrial sub-sectors like manufacturing, mining, and electricity. On the other hand, PMI relies on its key variable – new orders – which show growth-oriented positive trends, thereby making it more responsive to dynamic trends than IIP.