Today, the Reserve Bank released the results of 105th round of its quarterly industrial outlook survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q4:2023-24 and their expectations for Q1:2024-25¹ as well as outlook on select parameters for subsequent two quarters. In all, 1,354 companies responded in this round of the survey, which was conducted during January-March 2024.

Highlights:

A. Assessment for Q4:2023-24

• Manufacturers reported better demand conditions in their assessment of production, order books, capacity utilisation and overall business situation for Q4:2023-24 (Table A).
• Respondents assessed improvement in employment situation vis-à-vis the previous quarter.
• Input cost pressures increased during Q4:2023-24; the pace of rise in remuneration, however, moderated.
• Sentiments on overall financial situation and availability of finance remained positive, with some improvement vis-à-vis the previous survey round.
• Manufacturers polled lower rise in selling prices and assessed some deterioration in profit margins.
• The business assessment index (BAI)² for the manufacturing sector increased marginally to 114.2 in Q4:2023-24 from 113.9 in the previous quarter (Chart 1).

B. Expectations for Q1:2024-25

• Manufacturers remained optimistic on demand conditions in Q1:2024-25, with well over half of the respondents reporting rise in production, order books and overall business situation; the optimism was, however, lower when compared to that in the previous quarter, which is partly seasonal (Tables A, 1, 2 and 22).
• Cost pressures from raw materials and salary outgo are likely to persist during April-June 2024.
• Respondents expected some moderation in growth of selling prices and profit margins in synchrony with their expectations for demand conditions (Table B).
• The business expectations index (BEI) remained firmly in growth terrain at 127.2 in Q1:2024-25 though it moderated from its level of 130.3 in the previous survey round (Chart 1).

C. Expectations for Q2 and Q3:2024-25

• Manufacturers remained optimistic on production, capacity utilisation, order books, employment conditions and overall business situation (Table B).
• Input cost pressures are expected to continue till end-2024; selling price is anticipated to uphold during Q2 and Q3 of 2024-25.

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 February 08, 2024.

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.