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    IIP - Vs - PMI, Differences

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    Chetan Gupta
    The document compares two measures of industrial activity in India - the Index of Industrial Production (IIP) and the Purchasing Managers' Index (PMI). The IIP measures actual industrial output while the PMI surveys business expectations. They have different methodologies, frequencies and coverage. While the IIP provides a broader picture with a large representative basket, it is more volatile. In contrast, the PMI indicates only expansion or contraction based on expectations. Recent monthly figures show that while the manufacturing PMI continued expanding, the IIP growth decelerated in March. As the two measures are based on different data and methodologies, there is no direct one-to-one correspondence between them.

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    IIP - Vs - PMI, Differences

    Uploaded by

    Chetan Gupta
    261 views5 pages
    The document compares two measures of industrial activity in India - the Index of Industrial Production (IIP) and the Purchasing Managers' Index (PMI). The IIP measures actual industrial output while the PMI surveys business expectations. They have different methodologies, frequencies and coverage. While the IIP provides a broader picture with a large representative basket, it is more volatile. In contrast, the PMI indicates only expansion or contraction based on expectations. Recent monthly figures show that while the manufacturing PMI continued expanding, the IIP growth decelerated in March. As the two measures are based on different data and methodologies, there is no direct one-to-one correspondence between them.

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    Difference Between IIP and PMI, Index of Industrial Production, Purchasing Managers Index

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    IIP_vs_PMI, Differences

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    The document compares two measures of industrial activity in India - the Index of Industrial Production (IIP) and the Purchasing Managers' Index (PMI). The IIP measures actual industrial output while the PMI surveys business expectations. They have different methodologies, frequencies and coverage. While the IIP provides a broader picture with a large representative basket, it is more volatile. In contrast, the PMI indicates only expansion or contraction based on expectations. Recent monthly figures show that while the manufacturing PMI continued expanding, the IIP growth decelerated in March. As the two measures are based on different data and methodologies, there is no direct one-to-one correspondence between them.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    261 views5 pages

    IIP - Vs - PMI, Differences

    Uploaded by

    Chetan Gupta
    The document compares two measures of industrial activity in India - the Index of Industrial Production (IIP) and the Purchasing Managers' Index (PMI). The IIP measures actual industrial output while the PMI surveys business expectations. They have different methodologies, frequencies and coverage. While the IIP provides a broader picture with a large representative basket, it is more volatile. In contrast, the PMI indicates only expansion or contraction based on expectations. Recent monthly figures show that while the manufacturing PMI continued expanding, the IIP growth decelerated in March. As the two measures are based on different data and methodologies, there is no direct one-to-one correspondence between them.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    Office of the Economic Adviser

    Department of Industrial Policy and Production


    ***
    A statement showing comparison of Index of Industrial Production (IIP) with
    Purchasing Managers Index (PMI)
    IIP PMI
    Definition IIP is defined as the ratio of the
    volume of commodities produced
    within a specified group of
    industries in a given time period
    to the volume produced in the
    same group of industries in a
    specified base period.

    Purchasing Managers Index
    or PMI is based on a survey
    of purchase managers of
    companies and is used as an
    indicator to assess demand
    by businesses.
    Measurement IIP growth is expressed in year-
    on-year (y-o-y) terms.
    PMI is a seasonally adjusted
    month-on-month (m-o-m)
    indicator.
    Compilation Central Statistics Office (CSO) Markit (HSBC)
    Frequency Monthly Monthly
    Release IIP is released on 12th day of the
    following month (with a time lag
    of around 6 weeks).

    The PMI surveys are released
    shortly after the end of the
    reference period.
    Manufacturing data are
    generally released on the 1st
    working day of the month,
    followed by construction on
    the 2nd working day and
    services on the 3rd working
    day

    Coverage Includes 682 items covering
    broad sectors of mining,
    manufacturing and electricity
    with disaggregated results being
    provided at 2-digit industry
    groups for the manufacturing.
    It is a survey based indicator
    covering only the private
    sector companies. It is a
    composite of five of the
    survey indices. These are
    New orders, Output,
    Employment, Suppliers'
    delivery times and Stocks of
    purchases.

    Weights


    Source of Data Sixteen Source agencies viz.
    Department of Industrial Policy &
    Promotion, Indian Bureau of
    Mines, Directorate of Sugar, Salt
    Commissioner, Directorate of
    Vanaspati, Tea Board, Coffee
    Board, Textile Commissioner,
    Jute Commissioner, Coal
    Controller, Ministry of Petroleum,
    Development Commissioner Iron
    & Steel, Railway Board,
    Development Commissioner
    MSME, Central Electricity
    Authority.
    The HSBC India
    Manufacturing PMI is based
    on data compiled from
    monthly replies to
    questionnaires sent to
    purchasing executives in over
    500 private manufacturing
    companies.
    Base Year 2004-05 -
    Methodology IIP in India uses base year
    weights, which remain fixed
    through the entire period of the
    series and uses a combination of
    volumes and deflators in its
    compilation. The weights
    assigned to sectors, i.e.
    manufacturing, mining and
    electricity are in terms of their
    relative importance in GDP and
    are derived from National
    Accounts aggregates.

    The national PMI
    surveys are based on
    questionnaire responses from
    panels of senior purchasing
    executives or similar in
    manufacturing and services
    companies. Questionnaires
    are completed and returned
    in the latter half of each
    month, and then processed
    by economists at Markit
    Economics. Respondents are
    asked to state whether
    business conditions for a
    number of variables have
    improved, deteriorated or
    stayed the same compared
    Sectors Weights
    Mining & Quarrying 14.2
    Manufacturing 75.5
    Electricity 10.3
    Overall IIP 100.0
    Weights
    New orders 0.3
    Output 0.25
    Employment 0.2
    Suppliers' Delivery Times 0.15
    Stocks of purchases 0.1
    with the previous month.
    Reasons for any changes are
    also requested from
    respondents.
    PMI data are presented in the
    form of diffusion indexes and
    are calculated as follows:
    INDEX = (P1*1) + (P2*0.5) +
    (P3*0)
    P1 = Percentage number of
    answers that reported an
    improvement.
    P2 = Percentage number of
    answers that reported no
    change.
    P3 = Percentage number of
    answers that reported a
    deterioration.
    Thus, if 100% of the panel
    reported an improvement the
    index would be 100.0. If
    100% reported a deterioration
    the index would be zero. If
    100% of the panel saw no
    change the index would be
    50.0 (P2 * 0.5).
    Therefore, an index reading of
    50.0 means that the variable
    is unchanged, a number over
    50.0 indicates an
    improvement while anything
    below 50.0 suggests a
    decline. The further away
    from 50.0 the index is, the
    stronger the change over the
    month. E.g. a reading of 55.0
    points to a stronger increase
    in a variable than a reading
    of 52.5.
    Volatility More volatile.( IIP is subject to
    large fluctuations on account of
    base effect, seasonal factors such
    as festivals, hardening of interest
    rates etc.)
    -
    Revision in three months lag. Not revised.
    Representativeness With a large and more
    representative basket, IIP better
    capture the industrial scenario.
    Perceived index based on
    business expectations shows
    only expansion or
    contraction.

    As the methodology used for calculating IIP and PMI are different, one being
    based on actual production data and the other on business expectations, the
    comparison between the two cannot be made. The table shows that there exist no
    one-to-one correspondence between the two. The IIP for March decelerated to
    while the manufacturing PMI, however, showed expansion.
    Table : Monthly figures of IIP and PMI


    Months Manufacturing PMI IIP
    July, 2011 53.6
    3.7
    August, 2011 52.6
    3.4
    September, 2011 50.4
    2.5
    October, 2011 52.0
    -5.0
    November, 2011 51.0
    6.0
    December, 2011 54.2
    2.7
    January, 2012 57.5
    1.0
    February,2012 56.6
    4.1
    March,2012 54.7
    -3.2
    April,2012 54.9
    0.1
    May,2012 54.8
    -

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