Note4Students
From UPSC perspective, the following things are important :
Prelims level: Purchasing Managers' Index (PMI)
Mains level: NA
Central Idea
- India’s services sector has exhibited significant growth, as reflected by the S&P Global India Services Purchasing Managers’ Index (PMI), which reached a 13-year high of 62.3 in July.
- The recovery is driven by increased demand, new business opportunities, and robust export orders.
- However, challenges such as rising input costs and cautious output pricing indicate a nuanced landscape.
Service SectorThe service sector, also known as the tertiary sector, includes a wide range of economic activities that are focused on providing intangible goods and services to customers. Some examples of activities that fall under the service sector include:
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Purchasing Managers’ Index (PMI)
- PMI is an indicator of business activity — both in the manufacturing and services sectors.
- The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.
- It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
- It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
How is the PMI derived?
- The PMI is derived from a series of qualitative questions.
- Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
How does one read the PMI?
- A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
- Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
- If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.
Recent Feat Achieved
- Output Levels: The survey-based index shows that output levels experienced the fastest growth since June 2010, driven by robust demand and increased new business gains.
- Job Creation: Despite the surge in workload, job creation remained modest, with a “slight” pace of hiring. Firms employed a mix of part-time, full-time, permanent, and temporary staff.
- Rising Input Costs: Input costs recorded the fastest increase in 13 months, primarily due to higher food, labor, and transportation expenses.
- Output Price Dynamics: On the other hand, firms displayed caution in their output pricing strategy, with output prices increasing at the slowest rate in three months. This approach could be attributed to the desire to secure new contracts.
- Overseas Expansion: Export orders received a significant boost, with firms reporting the second-fastest increase in export orders since the inception of the index in September 2014.
- Key Growth Sources: Countries like Bangladesh, Nepal, Sri Lanka, and the UAE emerged as key sources of growth in export orders.
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