Today, the Reserve Bank released results of the 81st round of the Industrial Outlook Survey (IOS) conducted in January-March 2018. The Survey captures qualitative assessments of business sentiments in the Indian manufacturing sector for Q4:2017-18 and expectations for Q1:2018-19¹. Responses were received from 1250 companies in this round of the survey.

Highlights:

1. Assessment for Q4: 2017-18

1.1 Respondents were optimistic on demand conditions in Q4:2017-18, as reflected in their assessment of all the major parameters like production, order books, capacity utilisation, imports, exports and employment.

1.2 Respondents also found the overall financial situation to have improved with positive sentiments on availability of finance, especially from internal accruals, outweighing higher cost.

1.3 Persistent pressure from the cost of raw materials, coupled with inadequate pricing power, led to further lowering of the profit margin of the sampled companies.

1.4 Overall, the business sentiment of the Indian manufacturing sector improved as seen in the Business Expectations Index (BEI)² rising from 109.8 in Q3:2017-18 to 112.4 in Q4:2017-18.

2. Expectations for Q1: 2018-19

2.1 The upturn anticipated in demand conditions in the previous two quarters dipped in Q1:2018-19 with a subdued outlook on all indicators barring exports and imports.

2.2 Sentiment on availability of finance was also less optimistic for Q1:2018-19.

2.3 Input price pressure (of both raw materials and the capital) and sluggish demand conditions may lead to lower profit margins in Q1:2018-19.

2.4 About 10 percent of the respondents are expected to raise the selling price of their products.

2.5 The BEI (expectation) declined from 115.8 in Q4:2017-18 to 114.6 in Q1:2018-19.

¹The survey responses are those of the respondents and are not necessarily shared by the Reserve Bank of India. The 80th round (Q3:2017-18) survey results were released on January 18, 2018 on the RBI website.

²The Business Expectations Index (BEI) is a composite indicator calculated as a weighted (share of GVA of different industry group) net response of nine business indicators. The nine indicators considered for the computation of the BEI are: (1) overall business situation; (2) production; (3) order books; (4) inventory of raw material; (5) inventory of finished goods; (6) profit margin; (7) employment; (8) exports; and (9) capacity utilisation. It gives a snapshot of the business outlook in every quarter. BEI takes values between 0 and 200, and 100 is the threshold separating expansion from contraction.

³Net Response (NR) is the difference of percentage of the respondents reporting optimism and that reporting pessimism. The range is -100 to 100. Any value greater than zero indicates expansion/optimism and any value less than zero indicates contraction/pessimism i.e., NR = (I – D); where, I is the percentage response of ‘Increase/optimism’, and D is the percentage response of ‘Decrease/pessimism’ and Eis the percentage response as ‘no change/Equal’; I+D+E=100. For example, increase in production is optimism whereas decrease in cost of raw material is optimism.