Why in News? As per the Manufacturing PMI, India witnessed the 2nd-best improvement in operating conditions in three-and-a-half years, which fell to 58.8 in April from the 16-year high of 59.1 recorded in March.

What is PMI? PMI is an economic indicator, which is derived after monthly surveys of different companies. The index shows trends in both the manufacturing and services sector and helps in determining whether the market conditions (as seen by purchasing managers) is expanding, contracting or staying the same. There are two types of PMI - Manufacturing PMI and Services PMI. A combined index is also made using both manufacturing PMI and services PMI.

Who Produces PMI for India? PMI was started for the first time by the US-based Institute for Supply Management (ISM) in 1948. IHS Markit produces the PMI for India. The IHS Markit India Manufacturing PMI is derived after a survey of 500 manufacturing companies.

What is the Significance of the PMI?  It is used to provide information regarding the current and future business conditions. PMI is one of the closely watched indicators of business activity and helps in predicting the economic health of a country. The manufacturers and suppliers use the index to decide on their production needs based on new orders in the coming months. The index also helps investors who are looking to invest in the stock markets.

How is the Manufacturing PMI Derived? The PMI is derived by sending fact-based questions to a large number of companies in the concerned sector. For manufacturing PMI, the questions are related to 5 key variables - new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stock of items purchased (10%). A PMI number greater than 50 indicates expansion in business activity. A number less than 50 shows contraction.