The 75th round of the Reserve Bank of India’s Industrial Outlook Survey (IOS) indicated no improvement in business sentiments. This round of the survey was conducted during August-September 2016. The survey elicited response from 723 manufacturing companies. It provides qualitative assessment of business situation of companies in the Indian manufacturing sector for Q2:2016-17 and their expectations for the ensuing quarter Q3:2016-17. The 74th round (Q1:2016-17) survey results were released on August 9, 2016 on the RBI website.

The survey responses are those of the respondents and are not necessarily shared by the Reserve Bank of India.

Highlights:

Assessment for Q2:2016-17

• The Survey indicated slight moderation in the sentiments in demand condition in Q2:2016-17 as compared with Q1:2016-17. On a net basis, percentage of respondents favoring increase in production, order books, capacity utilisation and exports/imports was lower in this quarter.

• Availability of finance from banks and other sources was perceived to have improved along with reduced pessimism in the cost of finance. Sentiments on cost of raw material, however, deteriorated. Without commemorate increase in selling price, the profit margin was perceived to have declined further.

• Overall, the business sentiments of the Indian manufacturing sector, as inferred from the Business Expectation Index (BEI), moved slightly downward from the previous quarter.

Expectation for Q3: 2016-17

• The outlook on business sentiments in Q3: 2016-17 remained quite similar to that in Q2:2016-17. Optimism was expressed in production, capacity utilisation, and in overall financial situation. However, pressure from rise in cost of raw material is expected to keep profit margin unchanged.

• The summary index BEI remained at the same level as in Q2: 2016-17.

¹ Net Response (NR) is the difference of 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 i.e., 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.

² The Business Expectation Index (BEI) is a composite indicator calculated as weighted (share of GVA of different industry group) net response of nine business indicators. The nine indicators considered for computation of BEI are: (1) overall business situation, (2) production, (3) order books, (4) inventory of raw material, (5) inventory of finished goods, (6) profit margin, (7) employment, (8) exports and (9) capacity utilisation. It gives a single snapshot of business outlook in every quarter. BEI lies between 0 to 200, and 100 is the threshold separating expansion from contraction.