Today, the Reserve Bank released the results of the 97th round of the Industrial Outlook Survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q4:2021-22 and their expectations for Q1:2022-23¹. In all, 1,283 companies responded in this round of the survey conducted during January-March 2022. Owing to uncertainty driven by the COVID-19 pandemic, an additional block was included in this round of the survey for assessing the outlook on key parameters for two quarters ahead as well as three quarters ahead.

Highlights:

A. Assessment for Q4: 2021-22

• Manufacturing enterprises assessed improvement in demand condition in terms of production, order books and employment situation in Q4:2021-22, albeit at a slower pace when compared to the previous survey round (Table A).

• Sentiments on capacity utilisation and availability of finance improved further in Q4:2021-22.

• Manufacturers perceived continued price pressures with some softening in the pace of increase in input cost and selling prices.

• Sentiments on profit margin turned negative due to lower optimism on demand conditions vis-à-vis the preceding quarter.

• Business sentiments remained fairly positive though it waned marginally, as reflected in the business assessment index (BAI)², which stood at 111.5 in Q4:2021-22 as compared with 115.0 in the previous quarter (Chart 1).

B. Expectations for Q1: 2022-23

• Respondents expect expansion in the demand parameters such as production volumes, new orders and job landscape in Q1:2022-23.

• Capacity utilisation and overall financial situation are expected to improve further in Q1:2022-23.

• Pressure from purchase of raw materials are likely to intensify in Q1:2022-23; the respondents expressed higher optimism for growth in selling prices indicating more pricing power combined with input cost pressures vis-à-vis the previous survey round.

• Overall business expectations index (BEI) remained high though it moderated to 134.7 in Q1:2022-23 from 137.8 in the previous quarter (Chart 1).

C. Expectations for Q2:2022-23 and Q3:2022-23

• Manufacturers perceive sequential improvements in demand conditions, capacity utilisation and overall business situation till Q3:2022-23 (Table B).

• Respondents expect input cost pressures to continue and selling price to remain high in the ensuing quarters.

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 10, 2022. This round of the survey was launched on January 21, 2022 and results were compiled with data received till March 28, 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.