Today, the Reserve Bank released the results of the 98th round of the Industrial Outlook Survey (IOS) conducted during April-June 2022. The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q1:2022-23 and their expectations for Q2:2022-23¹. In all, 1,239 companies responded in this round of the survey. The additional response block for assessing the outlook on key parameters for two more quarters, which was introduced in the wake of uncertainties since the onset of the COVID-19 pandemic, was continued in this round of survey.

Highlights:

A. Assessment for Q1: 2022-23

• Respondents were optimistic about demand conditions in Q1:2022-23, as revealed in their positive assessment on production, order books, capacity utilisation, employment and foreign trade (Table A).

• Manufacturers assessed a rise in costs of raw material as well as in salary outgo during Q1:2022-23; they also perceived a rise in cost of funds.

• Sentiments on selling prices hardened in consonance with input cost pressures; respondents’ perception on profit margin turned marginally positive during the quarter.

• Overall, business sentiments in the manufacturing sector remained positive; the business assessment index (BAI)² stood at 110.7 in Q1:2022-23 as compared with 111.5 a quarter ago (Chart 1).

B. Expectations for Q2: 2022-23

• Respondents retained their optimistic outlook on demand conditions, as reflected in their expectations on production, order book, and employment for Q2:2022-23.

• Pressures from purchase of raw materials, staff cost and cost of financing are likely to continue in Q2:2022-23 and to adjust for the cost escalation, the respondents expected improvement in pricing power and profit margin.

• The business expectations index (BEI) improved to 137.7 in Q2:2022-23 from 134.7 in the previous quarter (Chart 1).

C. Expectations for Q3:2022-23 and Q4:2022-23

• Manufacturers perceive sequential improvement in demand conditions and overall business situation till Q4:2022-23 (Table B).

• Respondents expect marginal easing of input cost pressures in later part of the year; selling prices are expected to rise.

¹ The survey results reflect the respondents’ views, which are not necessarily shared by the Reserve Bank. This round of the survey was launched on April 22, 2022 and results were compiled with data received till June 30, 2022. Results of the previous survey round were released on the Bank’s website on April 8, 2022.

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 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.