The IHS Markit India Services Business Activity Index, also referred to as the Service Purchasing Managers’ Index (PMI), recorded a drop from 57.5 in February to 49.3 in March. This fall, notable for interrupting an 85-month high reached the previous month, signals a contraction in India’s services sector activity. Analysts attribute this significant decrease primarily to the COVID-19 pandemic, which has drastically diminished demand—particularly in overseas markets—and led to nationwide store closures.
The IHS Markit India Services Business Activity Index
This index is compiled by IHS Markit, a global leader in the provision of information, analytics, and solutions for the major industries and markets that propel economies worldwide. Its widespread application covers more than 40 economies globally. In PMI terminology, a score above 50 symbolizes expansion, while a score below 50 signifies contraction. The fact that the Indian index stood at 49.3 in March clearly represents a contraction in business activity for that period.
The Impact of COVID-19 on the Indian Economy
The COVID-19 pandemic has imposed significant constraints on service-sector activities. Nationwide lockdowns and stay-at-home orders have resulted in store and business shutdowns, dealing a severe blow to the economy. The repercussions have been particularly profound on international trade, as evidenced by the reduced demand in overseas markets.
Composite PMI Output Index
The Composite PMI Output Index, which represents both the manufacturing and service sectors, also experienced a drop. It went down 7 points from 57.6 in February to 50.6 in March. This decline suggests a considerable deceleration in private sector output growth, thereby halting a previously steadily increasing expansion trend.
The Role of the Purchasing Managers’ Index (PMI)
The PMI is an essential tool for assessing economic trends in the manufacturing and service sectors. It consists of a diffusion index that encapsulates market conditions from the perspective of purchasing managers, indicating whether these conditions are expanding, remaining stable, or contracting. The PMI aims to supply company decision-makers, analysts, and investors with valuable information about present and future business conditions. It differs from the Index of Industrial Production (IIP), another important economic gauge.
The Index of Industrial Production (IIP)
The IIP is a comprehensive index that reports the performance of various sectors in an economy, such as mineral mining, electricity, and manufacturing, among others. Compiled and published on a monthly basis by the Central Statistical Organisation under the Ministry of Statistics and Programme Implementation, the IIP’s base year has been updated from 2004-05 to 2011-12 as of April 2017.
Understanding the Core Industries
The eight core industries, which comprise 40.27% of the weight of items included in the IIP, are ranked in decreasing order of their weightage: refinery products, electricity, steel, coal, crude oil, natural gas, cement, and fertilizers.
Differences Between PMI and IIP
While both PMI and IIP are key mechanisms for scrutinizing economic activity, they differ in scope and function. The IIP covers a broader industrial sector than the PMI, offering insights into growth across this wider sector. It also provides data-based insights into production volume changes in primary industrial sub-sectors such as manufacturing, mining, and electricity, along with usage-based trends in industrial production.
By contrast, the PMI, due to its more dynamic nature, has the capacity to discern dynamic trends through the variables it employs to construct the index. A case in point is its ‘new orders’ segment, which reflects growth-oriented positive trends rather than simply echoing the volume of past production, a trait typical of ordinary Indexes of Industrial Production.
