Context-The headline seasonally-adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) fell from 51.4 in September to a two-year low of 50.6 in October.

What is a PMI?

• PMI or a Purchasing Managers’ Index (PMI) is an indicator of business activity -- both in the manufacturing and services sectors. It is a survey-based measures that asks the respondents about changes in their perception of some key business variables from the month before. It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.

PMI for India

• For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by Markit Economics (for the US, it is the ISM).
• The variables used to construct India’s PMI for manufacturing sector are: Output, New Orders, Employment, Input Costs, Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers? Delivery Times, Stocks of Purchases and Stocks of Finished Goods.
• Similar variables are used for the construction of services PMI. A manufacturing PMI and a services PMI are prepared and published by the two.
• The Nikkei and Markit economics websites says that PMI data are based on monthly surveys of carefully selected companies.

How is the PMI derived?

• The PMI is derived from a series of qualitative questions. Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.