IIP and PMI

There are two key parameters that the government and private sector analysts use to gauge the level of activity in the manufacturing sector. They are the Index of Industrial Production (IIP) and the Manufacturing Purchasing Managers’ Index (PMI).

Difference between IIP and PMI

  • PMI is a private sector survey while the IIP is gauged by the government.
  • The IIP is a measure of output. PMI measures activity at the purchasing or input stage.

PMI is based on the survey.

  • The Nikkei India Manufacturing PMI is based on data compiled from monthly survey responses by purchasing managers in more than 400 manufacturing companies.
  • The manufacturing sector is divided into eight broad categories — basic metals, chemicals and plastics, electrical and optical, food and drink, mechanical engineering, textiles and clothing, timber and paper and transport.
  • The survey responses reflect month-to-month changes based on the data collected mid-month.
  • Based on the responses the PMI is calculated with the weightage under 5 indices-  new orders (weightage 0.3), output (0.25), employment (0.2), suppliers’ delivery times (0.15), stock of items purchased (0.1) and the delivery times index inverted so that it moves in a comparable direction.
  • A score above 50 denotes expansion while one below 50 signifies contraction.

As with the IIP, the PMI suffers from the lacuna of not measuring informal sector activity. PMI is also susceptible to sampling errors, errors in assigning weights to various indicators and errors that creep in due to inaccurate responses. One important advantage the PMI has over the IIP is how quickly the data for any reporting period comes out. [The Hindu]

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