MANUFACTURING HITS RECORD LOW
05, May 2020
Prelims level : Economics – Growth and Development Mains level : GS-III Indian Economy and issues relating to planning, mobilization of resources, Growth, Development and Employment.
Why in News?
- According to a recent IHS Markit India monthly survey, Manufacturing Purchasing Managers’ Index (PMI) fell to 27.4 in April, 2020 from 51.8 in March, 2020.
- The Index (PMI) is compiled by IHS Markit for more than 40 economies worldwide. IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.
Highlights of the Report:
- The PMI slipped into contraction mode, after remaining in the growth territory for 32 consecutive months.
- In PMI’s language, a reading above 50 means expansion, while a score below that denotes contraction.
- According to the 12-month outlook for production the demand will rebound once the Covid-19 threat is diminished and lockdown restrictions are eased.
- The deteriorating demand conditions has led the manufacturers to drastically cut back staff numbers.Export orders have also witnessed a sharp decline.
- There was also evidence of supply-side disruption due to the lockdown.
Reasons Behind the Fall:
- India’s manufacturing sector activity has witnessed contraction in the month of April, 2020 due to national lockdown restrictions.
- The new business orders have collapsed at a record pace severely hampering the demand.
- This is the sharpest deterioration in business conditions across the manufacturing sector since data collection began over 15 years ago.
About Purchasing Managers’ Index:
- Purchasing Managers’ Index (PMI) is an indicator of business activity – both in the manufacturing and services sectors. It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
- The PMI summarizes whether market conditions as viewed by purchasing managers are expanding, neutral, or contracting.
- The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
- The PMI is a number from 0 to 100.
- PMI above 50 represents an expansion when compared to the previous month;
- PMI under 50 represents a contraction, and
- A reading at 50 indicates no change.
- The PMI is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
- It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.