Today, the Reserve Bank released the results of 101st round of its industrial outlook survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q4:2022-23 and their expectations for Q1:2023-24¹ as well as outlook on selected parameters for the two subsequent quarters. In all, 1,066 companies responded in this round of the survey, which was conducted during Q4:2022-23.

Highlights:

A. Assessment for Q4: 2022-23

• Respondents from manufacturing sector were positive on demand conditions in Q4:2022-23 in terms of improved assessment for overall business situation, production, order books and capacity utilisation compared to the previous round of the survey (Table A).

• Manufacturers assessed some moderation in the pace of increase in raw material cost and wage cost and were more positive on their financial situation during the quarter.

• Respondents reported deceleration in selling prices during Q4:2022-23; the sentiments on profit margin were less pessimistic than a quarter ago.

• Overall business sentiments remained buoyant as reflected through improved business assessment index (BAI)² at 112.2 for Q4:2022-23, as against 108.6 in the previous quarter (Chart 1).

B. Expectations for Q1: 2023-24

• Manufacturers were less optimistic on demand conditions during Q1:2023-24 as reflected in lower expectations for production, order books, capacity utilisation and foreign trade.

• Cost pressures from financing, purchase of raw materials and wages are likely to continue during Q1:2023-24.

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

• Business expectations index (BEI) for Q1:2023-24 exhibited further sign of normalisation by moderating notably at 126.4 from 132.9 in the previous quarter; it, however, remained highly positive (Chart 1).

C. Expectations for Q2:2023-24 and Q3:2023-24

• Manufacturers remain highly optimistic on production, order books, employment, capacity utilisation and overall business situation (Table B).

• Overall business situation is likely to improve further.

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 February 08, 2023.

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.