The S&P Global’s Indian Manufacturing PMI numbers are out. The report shows India has recorded the highest manufacturing growth in Asia. Let’s find out what it means for the Indian economy.
What’s Happening?
During the COVID-19 pandemic, the Indian economy entered a downward spiral, and the GDP growth rate slumped to an 11-year low of 3.1% in the March quarter of FY20. Not just that, the Purchasing Managers’ Index (PMI) slumped to a 15-year low of 27.4% in April 2020.
Then, when the economy was trying to recover from the COVID-19 shock, the Omicron wave in January 2021 hit the economy again. Then came the inflation data, which was at its peak, and the government is still trying to control it by taking various measures.
So, it is safe to say that the Indian economy is hopping from one crisis to another.
But, recently, it seems that the tables are slowly turning for the manufacturing industry because July’s S&P Global – Indian Manufacturing PMI numbers are out and it has recorded the highest manufacturing growth in Asia.
I know you must be wondering what exactly is PMI?
What is PMI?
Well, PMI stands for Purchasing Managers’ Index. It is a thermometer that measures the financial health of the manufacturing sector.
This measurement is done for every country and is analysed using five important factors.
- New orders
- Inventory level
- Production
- Supply delivery
- Employment environment
After analysing these factors, the PMI index is measured. The base of the PMI data is 50. If PMI crosses 50, it is considered that the business activities are expanding and a PMI below 50 is seen as a decline in business activities.
India’s Strongest Manufacturing Recovery – What Does It Mean?
In June 2022, India’s PMI stood at 53.9, while in July 2022, it stood at 56.4, the highest in the past eight months. Moreover, across Asia, India has shown the highest growth in PMI. This high PMI indicates a strong recovery of manufacturing activities in India despite the concerns over consecutive interest rate hikes, massive capital outflows, a weakening rupee, and a rapidly slowing global economy.
What Lies Ahead?
Majorly, the Indian economy is dependent on domestic demand. This might be one of the reasons why India has been so resilient amid the slowdown in the international markets.
This momentum would continue to grow if the commodity prices would get cheaper and all the other factors remain constant. But that’s too difficult to predict because a further hike in interest rates might also affect the manufacturing sector.
Now, the outcome of the MPC meeting will act as a critical note for the market.
That’s it for today. Don’t forget to share this article with your friends.
