Today, the Reserve Bank released the results of 106th round of its quarterly industrial outlook survey (IOS). The survey¹ encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q1:2024-25 and their expectations for Q2:2024-25 as well as outlook on select parameters for the subsequent two quarters. In all, 1,351 companies responded in this round of the survey, which was conducted during April-June 2024.

Highlights:

A. Assessment for Q1:2024-25

• Manufacturers’ assessment of growth in demand conditions moderated from the previous quarter as reflected in their gauge of production, order books, capacity utilisation, employment and overall business situation, but remained positive (Table A).

• Respondents reported some easing in pressures from cost of finance, while pressures on account of input costs and salary outgo were assessed to have gone up during Q1:2024-25.

• Manufacturers assessment of growth in selling prices remained around that assessed in the previous survey; profit margins were reported to deteriorate.

• Overall, business sentiment in the Indian manufacturing sector moderated, as reflected in the business assessment index (BAI)² moving to 110.8 in Q1:2024-25 from 114.2 in the previous quarter (Chart 1).

B. Expectations for Q2:2024-25

• Manufacturers’ optimism on demand conditions moderated further in Q2:2024-25.

• Input cost pressures are expected to persist, however, pressures from finance cost and wage bill are anticipated to soften.

• Respondents expected moderation in selling prices growth and subdued profit margin vis-à-vis previous quarter.

• The business expectations index (BEI) moderated for the third consecutive quarter to 119.1 from its level of 127.2 in the previous quarter (Chart 1).

C. Expectations for Q3 and Q4:2024-25

• Demand conditions are expected to improve during the second half of the current financial year (Table B).

• Manufacturers expect input cost pressures to persist and anticipate better pricing power in terms of higher growth in selling prices on the back of improved demand conditions in H2:2024-25.

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 April 05, 2024.

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.