Today, the Reserve Bank released the results of 102nd round of its industrial outlook survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q1:2023-24 and their expectations for Q2:2023-24¹ as well as outlook on selected parameters for the two subsequent quarters. In all, 1,247 companies responded in this round of the survey, which was conducted during Q1:2023-24.

Highlights:

A. Assessment for Q1:2023-24

• Manufacturing companies reported somewhat slower improvement in demand conditions during Q1:2023-24, as revealed in their assessment on production, order books and capacity utilisation (Table A).

• Raw material cost pressures eased during the quarter but the pressures from rising salary outgo and elevated cost of finance are assessed to have sustained.

• Manufactures reported an uptick in selling price sentiments, with concomitant change in assessment for profit margin.

• Overall business sentiments in the manufacturing sector remained positive; business assessment index (BAI)² remained steady at 112.2 in Q1:2023-24 (Chart 1).

B. Expectations for Q2:2023-24

• Respondents were more optimistic on demand conditions for Q2:2023-24, as reflected in their improved expectations on production, order book, capacity utilisation, employment and foreign trade (Table A).

• Cost pressures from financing and wages are likely to continue during Q2:2023-24, whereas it is expected to soften a bit in the case of raw materials.

• Manufacturers expect higher selling prices and profit margins in Q2:2023-24.

• The business expectations index (BEI) improved to 132.5 for Q2:2023-24 from 126.4 in the previous quarter (Chart 1).

C. Expectations for Q3:2023-24 and Q4:2023-24

• Manufacturers continue to remain optimistic on production, order books, employment, capacity utilisation and overall business situation for the second half of the financial year (Table B).

• Input cost pressure is expected to continue with some easing and manufacturers expect that improved pricing power may enable them to raise selling price.

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 April 06, 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.