Central Idea

• Surge in PMI to 31-month high: The S&P Global India Manufacturing PMI soared to 58.7 in May, the highest level in 31 months.

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.

Key insights of recent trend

• Fastest factory order growth: Factory orders rose at the fastest pace since January 2021.
• Unprecedented accumulation of inputs: Producers accumulated inputs at an unprecedented pace due to lower costs.
• Improvement in operating conditions: The index reflects a substantial improvement in operating conditions, with a significant increase from 57.2 in April.
• Strong growth in order books and exports: Order books grew for the 23rd consecutive month, supported by a rise in export deals.
• Highest output levels in 28 months: Output levels reached the highest point in 28 months.
• Increased hiring: Pressure on capacities led firms to increase hiring, reaching a six-month high.

Reasons behind this rise

• Rise in selling prices: Producers raised selling prices at a solid and quicker rate in May, the highest in a year.
• Mild input costs but adjusted charges: Input costs remained historically mild, but producers adjusted their charges due to sustained cost increases and a supportive demand environment.
• Improved business confidence: Business confidence about growth improved, reaching a five-month high.
• Public faith in economy: Factors such as publicity and demand resilience contributed to the optimistic outlook.

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