Introduction
The manufacturing sector in India experienced a significant expansion in May, according to the seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI). The PMI rose from 57.2 in April to 58.7, indicating the strongest improvement in the sector’s health since October 2020.
What is S&P Global India Manufacturing Purchasing Managers’ Index (PMI)?
The S&P Global India Manufacturing Purchasing Managers’ Index (PMI) is a measure of the performance of the manufacturing sector in India. It is derived from a survey of 500 manufacturing companies and consists of five individual indexes:
- New Orders (30%)
- Output (25%)
- Employment (20%)
- Suppliers’ Delivery Times (15%)
- Stock of Items Purchased (10%)
A reading above 50 indicates expansion, below 50 indicates contraction, and 50 represents no change in the sector. The PMI provides a concise snapshot of the manufacturing sector’s health and is a valuable indicator for monitoring economic conditions in India.
Reasons
The increase in manufacturing expansion in May was caused by:
- Remarkable strength in demand conditions, with factory orders increasing for the twenty-third consecutive month.
- Increased demand for Indian products both domestically and internationally, leading to the strongest expansion in international sales in six months.
- Favorable market conditions and growing new orders, prompting Indian manufacturers to scale up production volumes.
- Improved supply chain conditions, resulting in a record accumulation of input inventories.
- Capacity pressures on goods producers, which supported job creation and led to a six-month high in employment growth.
- Stocks of purchases showed significant growth, increasing at an unprecedented pace.
Some important trends:
- The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose from 57.2 in April 2023 to 58.7 in May 2023, the highest level since October 2020.
- Out of the five PMI sub-components, stocks of purchases showed notable vigor, increasing at an unprecedented pace in May 2023.
- Factory orders increased for the twenty-third consecutive month in May, reaching the highest level since January 2021.
- Exports played a crucial role in driving new orders, with the fastest expansion in international sales in six months.
- The rate of expansion in quantities of purchases in May was the strongest in over 12 years.
- The manufacturing sector registered year-on-year growth of 4.5% in Q4 FY2023 after contracting in the previous two quarters.
- The robust performance of the manufacturing sector contributed to job creation and the accumulation of input inventories as supply chain conditions improved.
