Today, the Reserve Bank released the results of 103rd round of its quarterly Industrial Outlook Survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q2:2023-24 and their expectations for Q3:2023-24¹ as well as outlook on select parameters for subsequent two quarters. In all, 1,223 companies responded in this round of the survey, which was conducted during Q2:2023-24.

Highlights:

A. Assessment for Q2:2023-24

• Manufacturing companies reported higher optimism on demand conditions during Q2:2023-24, as reflected in their assessment on production, order books and capacity utilisation (Table A).

• Respondents reported higher pressure from raw material cost; there was some easing of wage bill and finance cost burden.

• Net sentiments on profit margin turned positive during Q2:2023-24 after four quarters of negative assessment.

• Overall business sentiments in the manufacturing sector improved further; the business assessment index (BAI)² increased to 115.0 in Q2:2023-24 from 112.2 in the previous quarter (Chart 1).

B. Expectations for Q3:2023-24

• Manufacturers expressed higher optimism for Q3:2023-24, as reflected in their improved expectations on production, order books, capacity utilisation and overall business situation (Table A).

• Cost pressures from raw materials and financing are likely to persist.

• Selling prices are expected to rise at a lower rate and profit margins are likely to remain steady.

• Reflecting the broad-based optimism, the business expectations index (BEI) for Q3:2023-24 improved to 135.4 from 132.5 in the previous quarter (Chart 1).

C. Expectations for Q4:2023-24 and Q1:2024-25

• Manufacturers remain highly optimistic on production, order books, capacity utilisation and overall business situation till Q1:2024-25 (Table B).

• Input cost pressures are likely to persist for manufacturers, but they also expect pricing power to pass on the rise in selling prices.

Note: Please see the excel file for time series data.

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 August 10, 2023.

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.