A measure of manufacturing


Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

From UPSC perspective, the following things are important:

Prelims level: Index of Industrial Production, Manufacturing Purchasing Managers’ Index

Mains level: Various indexes related to economic growth


Gauging the level of activity in the manufacturing

  1. There are two key parameters that the government and private sector analysts use to gauge the level of activity in the manufacturing sector
  2. The Index of Industrial Production (IIP) and the Manufacturing Purchasing Managers’ Index (PMI)

Manufacturing Purchasing Managers’ Index (PMI)

There are two main points of difference between the PMI and the IIP

  1. PMI is a private sector survey while the IIP is gauged by the government
  2. The IIP is a measure of output while PMI measures activity at the purchasing or input stage

How is the PMI survey conducted?

  1. The Nikkei India Manufacturing PMI is based on data compiled from monthly survey responses by purchasing managers in more than 400 manufacturing companies
  2. The manufacturing sector is divided into eight broad categories — basic metals, chemicals and plastics, electrical and optical, food and drink, mechanical engineering, textiles and clothing, timber and paper and transport
  3. The survey responses are meant to reflect month-to-month changes based on the data collected mid-month
  4. The Nikkei India Manufacturing PMI is composite index based on five individual indices with their own weightages — new orders (weightage 0.3), output (0.25), employment (0.2), suppliers’ delivery times (0.15), stock of items purchased (0.1) and the delivery times index inverted so that it moves in a comparable direction
  5. Once the overall number for the month is computed, the score is arrived at
  6. A score above 50 denotes expansion while one below 50 signifies contraction

Advantage of PMI over IIP

  1. The manufacturing PMI report for any given month comes out either on the last day of that month or on the first day of the next month
  2. The IIP, however, comes out after considerable delay
  3. The data for a given month comes out almost one and a half months later


Index of Industrial Production (IIP)

  1. The all India index of Industrial Production (IIP) is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period
  2. It is compiled and published monthly by the Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends
  3. IIP is a short-term indicator of industrial growth till the results from Annual Survey of Industries and National Accounts Statistics are available
  4. IIP is used as core ingredient in the compilation of annual and quarterly national accounts and forecasts of GDP
  5. In India, due to constraints of data availability and other resources, the index is compiled using figures of mining, manufacturing and electricity sectors only
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