Today, the Reserve Bank released the results of the 99th round of its industrial outlook survey (IOS) conducted during July-September 2022. The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q2:2022-23 and their expectations for Q3:2022-23¹. In all, 1,234 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 Q2: 2022-23

• Business conditions in the manufacturing sector moved further on the recovery path during Q2:2022-23 as the impact of the COVID-19 pandemic ebbed further; respondents maintained positive assessment for production, order books, capacity utilisation, employment and foreign trade situations, though the sentiments were marginally tempered from the previous round of the survey (Table A).

• Manufacturers assessed continued pressures from rising cost for raw materials, salary outgo and the cost of finance during the quarter; they, however, perceived some moderation in the pace of increase in raw material cost.

• Respondents reported deceleration in the pace of rise in selling prices during Q2:2022-23; their sentiments on profit margin for the quarter deteriorated.

• Overall, business sentiments in the manufacturing sector remained positive, albeit with some moderation; the business assessment index (BAI)² stood at 106.7 in Q2:2022-23 as compared with 110.7 in the previous quarter (Chart 1).

B. Expectations for Q3: 2022-23

• Respondents remained optimistic on demand conditions during Q3:2022-23, though it waned marginally, as reflected in their expectations on production, order books and employment.

• Pressures from purchase of raw materials and staff cost are likely to soften during Q3:2022-23.

• Selling prices and profit margins are expected to rise further; lower share of respondents expect further rise in selling prices as well as rise in profit margins during the ensuing quarter vis-à-vis the survey round.

• Overall, manufacturers remained optimistic about business conditions: the business expectations index (BEI) remained high at 134.4 in Q3:2022-23 though it moderated marginally from 137.7 in the previous quarter (Chart 1).

C. Expectations for Q4:2022-23 and Q1:2023-24

• Manufacturers are optimistic on demand conditions, employment situation and overall business scenario till Q1:2023-24 (Table B).

• Respondents expect sustained input cost pressures and selling price rise till first quarter of the next financial year.

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 05, 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.