Today, the Reserve Bank released the results of 100th round of its industrial outlook survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q3:2022-23 and their expectations for Q4:2022-23¹ as well as outlook for the two subsequent quarters. In all, 1,356 companies responded in this round of the survey, which was conducted during Q3:2022-23.

Highlights:

A. Assessment for Q3: 2022-23

• Respondents from manufacturing sector polled for demand expansion in Q3:2022-23 in terms of improved assessment for production, order books, capacity utilisation and employment situation compared to the previous round of the survey (Table A).

• Manufacturers assessed some moderation in the pace of increase in raw material cost and higher salary outgo and cost of finance during the quarter.

• Respondents reported deceleration in selling prices during Q3:2022-23 with net negative sentiments on profit margin.

• Overall business sentiments remained buoyant as reflected through improved business assessment index (BAI)² at 108.6 for Q3:2022-23, as against 106.7 in the previous quarter (Chart 1).

B. Expectations for Q4: 2022-23

• Respondents retained optimistic outlook on demand conditions for Q4:2022-23, with marginally waned expectations on order books, employment and foreign trade.

• Cost pressures from financing, purchase of raw materials and wages are likely to continue with some softening during Q4:2022-23.

• Selling prices and profit margins are expected to continue to rise with some curb as a majority of respondents expect ‘no change’.

• Manufacturers remained highly optimistic about overall business conditions with the business expectations index (BEI) remaining elevated at 132.9 in Q4:2022-23 though it moderated marginally on a sequential basis (Chart 1).

C. Expectations for Q1:2023-24 and Q2:2023-24

• Manufacturers remain optimistic on demand conditions for next two expectations quarters as reflected in highly positive sentiments on production, order books, employment condition, capacity utilisation and overall business situation (Table B).

• Input cost pressures for manufacturing sector is likely to continue with some easing and selling price growth is expected to remain elevated with softening bias during H1:2023-24.

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 September 30, 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.