Today, the Reserve Bank released the results of the 85th round of the Industrial Outlook Survey (IOS) conducted during January-March, 2019. The survey captures qualitative assessments of the business environment by companies in India’s manufacturing sector for Q4:2018-19 and their expectations for Q1:2019-20¹. Responses were received from 1,258 companies in this round of the survey.

Highlights:

• Respondents assessed demand conditions in Q4:2018-19 to be broadly similar to those in the previous quarter, with a modest improvement in sentiments on production, employment and exports offset by deterioration in optimism on imports, while the assessment of order books remained unchanged.

• Sentiments regarding the overall financial situation turned around, with improved availability of finance from internal accruals; however, respondents were less hopeful of easier availability of finance from banks.

• Moderation in cost pressures, including cost of finance, cost of raw materials and salary expenses brought some respite to manufacturers reeling under stressed profit margins.

• Overall business sentiment in the Indian manufacturing sector, as reflected by the Business Assessment Index (BAI)² remained optimistic at 107.2 in Q4:2018-19.

• As regards expectations for Q1:2019-20, respondents anticipated softer expansion in demand, with prospect of employment holding up.

• Sentiment on the overall financial situation remained optimistic on expectations of easier availability of finance from internal accruals.

• Anticipating large increases in staff costs, manufacturers expressed muted optimism on profit margins in Q1:2019-20.

• The Business Expectations Index (BEI) moderated from 116.2 in Q4:2018-19 to 113.5 in Q1:2019-20.

¹ The survey responses are those of the respondents and are not necessarily shared by the Reserve Bank of India. The survey results of 84th round (Q3:2018-19) were released on February 7, 2019 on the RBI website.

² For each of the survey round, two indices are computed - one based on assessment namely Business Assessment Index (BAI) and another based on expectations, namely Business Expectations Index (BEI). Each indicator for the respective period is calculated as a weighted (share of GVA of different industry group) net response of nine business indicators. The nine indicators 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 in 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. 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+D+E=100. For example, increase in production is optimism whereas decrease in cost of raw material is optimism.