Today, the Reserve Bank released the results of the 93rd round of the Industrial Outlook Survey (IOS) conducted during January-March 2021. The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q4:2020-21 and their expectations for Q1:2021-22¹. In all, 967 companies responded in this round of the survey. 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: 2020-21

• Manufacturing companies assessed further strengthening of production, order books and employment during Q4:2020-21 (Table A).

• Sentiments on financial situation improved in terms of availability of finance from banks, internal accruals and overseas sources.

• Manufacturers perceived higher cost pressures mainly stemming from purchase of inputs and salary expenses and some increase in selling prices during the quarter.

• The business assessment index (BAI)² extended further in expansion zone to 113.1 in Q4:2020-21 from 108.6 in the previous quarter (Chart 1).

B. Expectations for Q1: 2021-22

• Production volumes, new orders and job landscape are expected to strengthen in Q1:2021-22.

• Optimism prevails on the overall financial situation.

• Respondents expect more pressure from cost of finance, purchase of raw materials and salary outgo in Q1:2021-22.

• Selling prices as well as profit margins are expected to increase in Q1:2021-22.

• The business expectations index (BEI) increased further to 119.6 in Q1:2021-22 from 114.1 in Q4:2020-21 (Chart 1).

C. Expectations for Q2:2021-22 and Q3:2021-22

• Manufacturers perceived further improvement in production and overall business situation in Q2:2021-22 and Q3:2021-22 (Table B).

• Capacity utilisation and employment conditions are expected to improve.

• Respondents expected input cost pressure to continue, albeit with marginal easing and selling prices to harden gradually.

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 5, 2021. This round of the survey was launched on January 22, 2021 and results were compiled with data received till March 27, 2021.

² For each survey round, two 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.