Page 33 - FIPI - Policy & Economic Report May 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Based on the above formula, the index operates on a baseline scale of 0 to 100 with a critical threshold of
50.0 i.e.: -

? PMI > 50.0: Indicates an expansion in the sector
? PMI < 50.0: Indicates a contraction in the sector
? PMI = 50.0: Represents neutrality or no month-over-month change
Understanding Diffusion Index

In the context of the Manufacturing PMI, a diffusion index is a statistical tool designed to measure the
breadth and direction of an economic trend, rather than its absolute magnitude, i.e. a diffusion index tells
us how many factories are experiencing growth, not how much those factories grew.

Diffusion Index = (% Increase * 1.0) + (% No change * 0.5) + (% Decrease * 0)

To understand the nature of diffusion index, we consider two scenarios tracking a group of 10 factories:

? Scenario A: 9 small factories see a tiny 1% increase in production, while 1 massive factory suffers
a 40% drop.

? Scenario B: 9 factories stay exactly flat, while 1 massive factory enjoys a 300% surge in production.

Diffusion index Scenario A Scenario B
(90*1) +0+(10*0) = 90 (10*1) +(90*0.5) +0= 55
Highly Positive; Growth is widely Slight Growth; Growth has not
diffused across 90% of the industry completely diffused to all
players. players.

May 2026 Calculating PMI using an example

A survey was conducted among 350 respondents and it was observed that 200 purchasing managers
indicate an improvement; 100 indicate no change, and 50 indicate a decline, then what is the PMI?

Step 1: - Calculation of Diffusion index i.e. (% Increase * 1.0) + (% No change * 0.5) + (% Decrease * 0)

Scenario A-Considering a hypothetical situation where all 350 respondents answered the survey with
same consistency meaning for all 5 sub-indices (new orders, Output, Employment, Suppliers’ Delivery
Time & Stocks of Purchase) 200 respondents said increase, 100 said no change and 50 said decline, then
each individual index would be 71.43.

Total respondents= 350

% Increase: 200/350 = 57.14%
% No Change: 100/350 = 28.57%
% Decline: 50/350 = 14.29%

Diffusion Index = (57.14 * 1.0) + (28.57 * 0.5) + (14.29 * 0) = 71.43

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