Current Affairs Brain Booster for UPSC & State PCS Examination

Topic: Purchasing Managers Index and NIBRI

Why in News?

• Business activity in India’s manufacturing sector surged to its highest level in 13 years. The seasonally adjusted headline of Nikkei Manufacturing Purchasing Managers’ Index (PMI) , compiled by IHS Markit, rose from 56.8 in September to 58.9 in October.
• The Nomura India Business Resumption Index (NIBRI) increased to 84.4 for the week ending November 1, the highest value since the imposition of the lockdown; 100 indicates prepandemic levels of economic activity.

Resilience in Indian Economy

• India's factory activity expanded at its fastest pace in over a decade in October as demand and output continued to recover strongly from coronavirus-related disruptions.
• Asia's third-largest economy is healing after shrinking a record 23.9% in the April-June quarter.
• The gradual reopening of the economy and restocking ahead of the festive season has aided the recovery. The October reading was the highest since 2008
• The sharp recovery was aided by a revival in exports. New export orders rose from 53.8 in September to 55.2 in October.
• The rural economy appears to be relatively more robust than the urban economy thanks to the higher allocations for employment guarantee schemes, larger fiscal spends, a reasonably good rabi harvest and a spike in waged until May.

Looming Threat

• After a sharp contraction, businesses are bound to see an improvement as the economy opens up. Concerns on high unemployment and rising income inequality remain.
• With the International Monetary Fund (IMF) projecting a fall in India’s per capita income, the outlook on demand remains dull. The extent of durable damage that this pandemic has done to the Indian economy is still not known.
• Firms are reducing staff for the seventh month in a row, a streak not witnessed since the survey began in 2005, signaling a quick recovery in the consumer-driven economy may be a distant possibility.
• Input and output prices increased at a faster pace last month, although most of the burden of rising price pressures was carried by firms.
• That could lead overall retail inflation, which rose to an eight-month high of 7.34% in September, to remain above the Reserve Bank of India‘s medium-term target of 2-6% in coming months, reducing the chances of further easing by the central bank.

The Indexes

• The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
• It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
• The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
• Nomura had cautioned against a “faux recovery” restricted to a festive demand-led pick up in various indicators
• The Nomura India Business Resumption Index (NIBRI) is a weekly tracker of the pace at which the economic activity normalizes.

Challenges Ahead

• The only long-term driver of sustained economic growth is demand. It is on this front that uncertainty remains.
• October and November could see a one-time boost in spending because of the festive demand.
• A good kharif harvest, which is already underway in most parts of the country, could signal a sustained rural boost to demand in the economy.
• There is also the question of the employment generation ability of the ongoing sequential recovery.