Today, the Reserve Bank released the results of the 96th round of the Industrial Outlook Survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q3:2021-22 and their expectations for Q4:2021-22¹. In all, 1082 companies responded in this round of the survey conducted during October-December 2021. Owing to uncertainty driven by the COVID-19 pandemic, an additional block was included in this round of the survey for assessing the outlook on key parameters for two quarters ahead as well as three quarters ahead.

Highlights:

A. Assessment for Q3: 2021-22

• Manufacturing enterprises assessed improvement in demand condition in terms of production, order books and employment situation in Q3:2021-22, albeit at a slower pace when compared to the previous survey round (Table A).

• Sentiments on capacity utilisation and availability of finance improved further in Q3:2021-22.

• Manufacturers perceived continued price pressures with some softening in the pace of increase in input cost and selling prices.

• Profit margin is assessed to remain in positive terrain with some moderation vis-à-vis the preceding quarter.

• Business sentiments of manufacturers remained well in the expansion terrain though it waned marginally, as reflected in the business assessment index (BAI)² which stood at 115.0 in Q3:2021-22³ as compared to 119.4 in the previous quarter (Chart 1).

B. Expectations for Q4: 2021-22

• Respondents expressed optimism in Q4:2021-22 on demand parameters such as production volumes, new orders and job landscape.

• Capacity utilisation and overall financial situation are expected to improve further in Q4:2021-22, though the optimism moderated from the previous quarter.

• Input cost pressures are likely to remain elevated in Q4:2021-22; the pace of rise in selling prices is expected to witness some softening.

• Overall business expectations index (BEI) moderated to 137.8 in Q4:2021-22 from 139.3 in the previous quarter (Chart 1).

  

C. Expectations for Q1:2022-23 and Q2:2022-23

• Manufacturers perceive sequential improvements in demand conditions, capacity utilisation and overall business situation till Q2:2022-23 (Table B).

• Respondents expect input cost pressures to continue, albeit with marginal easing, in the first half of 2022-23.

¹ The survey results reflect the respondents’ views, which are not necessarily shared by the Reserve Bank. Results of the previous survey round were released on the Bank’s website on October 8, 2021. This round of the survey was launched on October 22, 2021 and results were compiled with data received till December 31, 2021.

² For each survey round, two summary indices are computed – one based on assessment [viz., Business Assessment Index (BAI)] and another based on expectations [viz., Business Expectations Index (BEI)]. Each index is a composite indicator calculated as a simple average of nine business parameters, where each parameter is derived as a weighted net response, weights being the share of industry groups in gross value added (GVA). The nine parameters considered are: (1) overall business situation; (2) production; (3) order books; (4) inventory of raw material; (5) inventory of finished goods; (6) profit margins; (7) employment; (8) exports; and (9) capacity utilisation. BAI/BEI gives a snapshot of the business outlook in every quarter and takes values between 0 and 200, with 100 being the threshold separating expansion from contraction.

³ From this round of the survey, products and industries have been classified as per the national industrial classification (NIC-2008) codes and gross value added (GVA) weights from the Annual Survey of Industries (ASI) of the National Statistical Office (NSO) are used for compilation of summary indices since 2013-14.

⁴ Net Response (NR) is the difference between the percentage of respondents reporting optimism and those reporting pessimism. It ranges between -100 to 100. Any value greater than zero indicates expansion/optimism and any value less than zero indicates contraction/pessimism. In other words, NR = (I – D), where, I is the percentage response of ‘Increase/optimism’, and D is the percentage response of ‘Decrease/pessimism’ and E is the percentage response as ‘no change/equal’ (i.e., I+D+E=100). For example, increase in production is optimism whereas decrease in cost of raw material is optimism.