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Informist, Thursday, Aug. 6, 2026

By Shweta

NEW DELHI – India's factory output in June, as tracked by two separate indices, painted contrasting pictures. While the official Index of Industrial Production showed stronger growth on a sequential basis, the Manufacturing Purchasing Managers' Index indicated slower growth than in May. The conflicting signals have left market participants confused, prompting many to rely on one indicator over the other.

Most economists are reluctant to draw a parallel between the two indices, though both measure manufacturing activity. They attribute the divergence to methodological differences and prefer using the IIP for growth forecasts.

Both indices are key indicators of domestic manufacturing activity, an important sector in assessing the country's economic growth. The IIP reflects the current state of industrial output while the purchasing managers' index provides a forward-looking assessment of the sector.

If the relationship between the two holds, IIP growth should slow in line with the purchasing managers' index in the coming months. Economists describe the purchasing managers' index, which is based on a survey of market participants, as a diffusion index. The HSBC India Manufacturing Purchasing Managers' Index eased to 54.2 in June from a six-month high of 55.0 in May. According to S&P Global, which compiles the index, the moderation reflected weaker demand because of the war in West Asia. However, the index remained in expansionary territory.

"It (June data) therefore continues to signal that there is an expansion and not a contraction in terms of the output sort of aspirations going forward," Indranil Pan, chief economist at YES Bank, told Informist. The purchasing managers' index is measured on a scale of 0 to 100. A reading above 50 indicates expansion in activity from the previous month. A reading below 50 indicates contraction.

In contrast, the statistics ministry said IIP growth accelerated to a nearly two-year high of 7.3% in June from 2.2% a year earlier. The general index of industrial production rose to 123.1 in June from 122.5 in May. Growth in factory output was driven by a favourable base effect, along with higher manufacturing activity and electricity generation. The manufacturing output index, as measured by the IIP, rose to 123.3 in June from 122.2 in May while manufacturing output growth accelerated to 7.8% from 2.4% a year earlier. The IIP measures short-term industrial performance and is used for policy formulation, GDP estimation, and economic analysis.

Economists believe the purchasing managers' index's findings should eventually be reflected in the IIP. Usually, there is a lag between the two indices, given that both track the same sector, although the relationship is not always straightforward.

"PMI is a survey while IIP is absolute hard data," Pan said. "IIP also in various phases tends to be very volatile and sometimes a single month's data of an increase may not be a very solid indicator and may not be correlating with the PMI at all. So there will be a lead and lag anyway for information to flow through from the PMI side to the IIP side. Logically speaking, a PMI should be reflected (in the IIP)."

However, that has not always been the case. In the past, purchasing managers' index survey respondents indicated that companies would pass on higher input costs to consumers following the war in West Asia. But manufacturers absorbed much of the increase instead of passing it on, Gaura Sengupta, chief economist at IDFC FIRST Bank, said. "We don't really put too much weight on PMIs. Because the track record is not good for some reason." Even in 2012, the two indices did not move in the same direction.

"GVA (gross value added) is based partially on IIP and partially on the corporate results," Pan said. "So, we would be very crucially also looking at corporate results. I use the IIP more in terms of reflection on the unorganised sector... but not directly."

Nevertheless, the purchasing managers' index remains an important global macroeconomic indicator. Central banks, including the Reserve Bank of India, use the index to gauge economic momentum and price pressures.  End

Edited by Rajeev Pai

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