Economy on track? Nov Composite PMI sees quickest growth since note ban

Should augur well for Q3 GDP growth, tweets Economic Affairs Secretary Subhash Garg

After subdued gross domestic product (GDP) growth in the second quarter (Q2) of the current financial year (2018-19), widely tracked Nikkei purchasing managers’ index (PMI) provided a ray of hope for the economy. 

The country’s services and manufacturing activities grew at the highest rate since demonetisation (November 8, 2016), showed the data released by the PMI survey. This prompted the finance ministry and the Reserve Bank of India (RBI) to emphasise that the economic growth is on track. 

Manufacturing and services (both private and public sectors) account for almost 74 per cent of the country’s GDP.

At 54.5 points, Nikkei India Composite PMI Output Index pointed to the fastest expansion in private sector activity since October 2016, which was a month before demonetisation was announced by Prime Minister Narendra Modi. The index stood at 53 points in October. 

The RBI in its policy statement pointed out that the Composite PMI Output Index touched a two-year high of 54.5 in November. That, along with other factors, has prompted it to retain its GDP growth projection at 7.4 per cent for 2018-19, despite a muted 7.1 per cent GDP growth in Q2. 

The Composite Index rose as services PMI rose to a four-month high of 53.7 in November, from 52.2 in October due to new orders. 

The PMI data released on Monday had shown that the index for manufacturing was up at 54 points in November, the highest so far in this calendar year. 

The survey noted that exports rose to a four-year high in November, even as there was decline in new orders for services from overseas.  

Economic Affairs Secretary Subhash Garg said the Composite PMI augurs well for third quarter (Q3) GDP growth. 

“Fastest expansion in Composite PMI Output Index in November since October 2016... PMI notes quickest pace of growth in exports in November in the last four years. Overall strong increase in business activity and in demand. Should augur well for 3rd quarter GDP growth,” Garg tweeted.  

Pollyanna De Lima, principal economist at IHS Markit, and author of the report, also said that the data shows the private sector will provide impetus to GDP numbers in Q3. 

“The welcoming news... so far suggests that the private sector economy will provide impetus to Q3 2018-19 GDP results,” the economist said.

On employment, the survey said additions to the workforce were maintained for the 16th month running. “So far, 2018 proved to be the strongest year for employment growth for a decade,” Lima added.

The data showed that the picture for prices was mixed, as input cost inflation moderated to a seven-month low, but firmer demand enabled firms to hike their charges to a greater extent.