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Date : Jan 25, 2017
Decline in Overall Business Sentiments for Q4:2016-17: RBI’s Industrial Outlook Survey finds

The 76th round of the Reserve Bank of India’s Industrial Outlook Survey (IOS) indicated a decline in business sentiments. This round of the survey was conducted during October-December 2016. The survey elicited response from 1221 manufacturing companies. The survey provides qualitative assessment of business situation of companies in the Indian manufacturing sector for Q3:2016-17 and their expectations for the ensuing quarter Q4:2016-17. Results of 75th round (Q2:2016-17) of the survey were released on October 4, 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 Q3:2016-17

The survey indicated slight moderation in the sentiments in demand condition for the second successive quarter. In respect of several parameters like order books, capacity utilisation and imports, the level of optimism was lower in this quarter than Q2:2016-17. However, the respondents were somewhat more optimistic about the export performance than Q2:2016-17 while the optimism on production remained unchanged.

Availability of finance from banks and other sources were perceived to have worsened. However, due to reduced pessimism about the cost of finance and the cost of raw material, the sentiment on profit margin remained largely unchanged.

Overall, the business sentiments of the Indian manufacturing sector, as inferred from the Business Expectation Index (BEI), deteriorated for the second successive quarter.

Expectation for Q4: 2016-17

The outlook on business sentiments in Q4: 2016-17 largely followed similar pattern. However, in respect of demand condition (Order Books, Production), the outlook deteriorated. Pressure from rise in cost of raw material was expected to bring down profit margin. Improved sentiments were expressed in pending orders, exports, and cost of finance.

The summary index BEI declined from the Q3: 2016-17 level.

Summary Table
Net response1 (in %) comparison over previous quarter
Parameters Assessment period Expectation period
Q2:2016-17 Q3:2016-17 Q3:2016-17 Q4:2016-17
Production 10.8 10.8 28.9 27.8
Order Books 9.0 7.1 24.7 20.9
Pending Orders 13.7 13.7 6.2 10.3
Capacity Utilisation 3.6 2.3 17.2 16.4
Exports -0.8 4.4 11.2 12.1
Imports 7.0 6.2 8.7 8.4
Employment 6.8 3.8 9.1 5.2
Financial Situation 16.4 11.9 27.1 24.6
Availability of Finance (from internal accruals) 12.5 9.9 20.2 17.4
Cost of Finance -7.9 -3.2 -7.5 -0.3
Cost of Raw Material -39.0 -38.2 -32.0 -34.3
Selling Price 2.0 0.7 6.8 5.9
Profit Margin -12.9 -13.0 0.1 -2.8
Overall Business Situation 17.4 13.0 31.3 27.9
Salary 32.8 26.1 24.7 21.7
Business Expectation Index2 102.7 101.1 112.9 111.1

Alpana Killawala
Principal Adviser

Press Release : 2016-2017/2001


Table 1: Assessment & Expectation for Production
(Percentage responses)@
Quarter Total response Assessment Expectation
Increase Decrease No change Net response# Increase Decrease No change Net response
Q3:2015-16 1337 34.2 18.2 47.6 16.0 40.5 11.3 48.2 29.2
Q4:2015-16 1342 35.6 18.8 45.6 16.8 41.2 10.2 48.6 31.1
Q1:2016-17 1275 34.5 17.2 48.3 17.3 38.8 13.8 47.4 25.0
Q2:2016-17 723 31.4 20.6 48.0 10.8 40.2 11.2 48.6 29.0
Q3:2016-17 1221 32.0 21.2 46.8 10.8 40.9 12.0 47.2 28.9
            41.1 13.3 45.6 27.8
‘Increase’ in production is optimistic.
@: Due to rounding off percentage may not add up to 100. This is applicable for all the tables from 1 to 17.
#: 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 and any value less than zero indicates contraction.

Table 2: Assessment & Expectation for Order Books
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2015-16 1337 30.4 18.8 50.8 11.5 37.4 11.9 50.8 25.5
Q4:2015-16 1342 31.8 19.7 48.5 12.1 39.7 10.6 49.8 29.1
Q1:2016-17 1275 32.1 16.5 51.3 15.6 35.5 14.3 50.3 21.2
Q2:2016-17 723 29.3 20.4 50.3 9.0 38.1 10.8 51.1 27.3
Q3:2016-17 1221 29.1 22.0 48.9 7.1 36.4 11.7 51.9 24.7
            35.1 14.2 50.7 20.9
‘Increase’ in order books is optimistic.

Table 3: Assessment & Expectation for Pending Orders
(Percentage responses)
Quarter Total response Assessment Expectation
Below Normal Above Normal Normal Net response Below Normal Above Normal Normal Net response
Q3:2015-16 1337 19.2 5.0 75.8 14.3 14.1 6.5 79.4 7.6
Q4:2015-16 1342 18.2 4.3 77.4 13.9 13.3 7.0 79.7 6.3
Q1:2016-17 1275 16.7 5.7 77.6 11.0 15.1 4.9 80.0 10.2
Q2:2016-17 723 18.9 5.2 75.9 13.7 12.9 6.3 80.8 6.6
Q3:2016-17 1221 19.0 5.3 75.7 13.7 12.9 6.7 80.4 6.2
            15.3 5.0 79.7 10.3
Pending orders ‘Below Normal’ is optimistic.

Table 4: Assessment & Expectation for Capacity Utilisation
(Percentage responses)
Indicator Options Assessment Expectation
Q3:2015-16 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2016-17 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2016-17 Q4:2016-17
Capacity Utilisation (CU)-(main product) Increase 23.4 24.6 21.8 21.5 20.2 27.8 26.3 26.5 27.4 27.6
No Change 60.4 57.9 63.1 60.7 61.9 63.5 60.8 63.9 62.5 61.2
Decrease 16.3 17.5 15.1 17.9 17.9 8.7 12.9 9.7 10.2 11.2
Net Response 7.1 7.1 6.7 3.6 2.3 19.1 13.4 16.8 17.2 16.4
Level of CU (compared to the average in last 4 quarters) Above normal 8.7 9.8 10.9 9.3 8.7 9.4 9.8 10.3 10.8 10.6
Normal 72.6 71.0 72.5 75.3 74.9 78.2 75.6 77.8 77.7 76.5
Below Normal 18.6 19.2 16.6 15.4 16.4 12.4 14.6 11.9 11.5 12.9
Net Response -9.9 -9.4 -5.7 -6.0 -7.7 -3.0 -4.8 -1.6 -0.7 -2.3
Assessment of Prod. Capacity (with regard to expected demand in next 6 months) More than adequate 14.3 13.9 14.6 14.4 12.3 14.5 13.8 13.6 14.2 11.9
Adequate 77.2 77.7 76.8 77.3 78.6 78.5 79.1 78.8 78.4 80.7
Less than adequate 8.5 8.5 8.6 8.2 9.1 7.0 7.1 7.6 7.4 7.4
Net Response 5.8 5.4 6.0 6.2 3.2 7.5 6.7 6.0 6.8 4.5
‘Increase’ in capacity utilisation is optimistic.

Table 5: Assessment & Expectation for Exports
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2015-16 1337 23.3 17.7 59.0 5.7 27.3 10.6 62.1 16.7
Q4:2015-16 1342 22.1 18.8 59.1 3.3 26.9 10.0 63.1 16.9
Q1:2016-17 1275 21.5 15.3 63.1 6.2 25.7 12.0 62.3 13.7
Q2:2016-17 723 19.8 20.6 59.6 -0.8 26.3 9.5 64.2 16.8
Q3:2016-17 1221 22.9 18.5 58.6 4.4 24.3 13.2 62.5 11.2
            25.3 13.2 61.5 12.1
‘Increase’ in exports is optimistic.

Table 6: Assessment & Expectation for Imports
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2015-16 1337 17.2 11.1 71.8 6.1 18.0 8.8 73.2 9.2
Q4:2015-16 1342 17.6 12.9 69.4 4.7 16.4 8.6 75.0 7.7
Q1:2016-17 1275 18.1 9.7 72.3 8.4 16.7 10.9 72.4 5.8
Q2:2016-17 723 17.5 10.6 71.9 7.0 17.5 7.9 74.6 9.6
Q3:2016-17 1221 17.9 11.7 70.4 6.2 18.1 9.4 72.5 8.7
            17.7 9.3 73.1 8.4
Increase’ in imports is optimistic.

Table 7: Assessment & Expectations for level of Inventory (Raw Material and Finished Goods)
(Percentage responses)
Indicator Options Assessment Expectation
Q3:20 15-16 Q4:20 15-16 Q1:20 16-17 Q2:20 16-17 Q3:20 16-17 Q4:20 15-16 Q1:20 16-17 Q2:20 16-17 Q3:20 16-17 Q4:20 16-17
Inventory of raw material Below average 6.5 7.0 6.0 7.0 7.3 5.3 5.9 5.8 5.2 6.8
Average 81.4 80.5 81.7 81.2 81.1 84.8 84.4 83.5 84.5 84.2
Above average 12.2 12.5 12.4 11.8 11.7 9.9 9.7 10.8 10.3 9.0
Net Response -5.7 -5.5 -6.4 -4.8 -4.4 -4.7 -3.8 -5.0 -5.2 -2.2
Inventory of finished goods Below average 7.0 8.7 7.0 6.7 6.4 6.2 7.0 7.1 4.5 6.5
Average 75.7 75.9 77.7 77.5 78.3 81.6 81.9 80.8 83.0 81.9
Above average 17.4 15.4 15.3 15.8 15.3 12.1 11.1 12.1 12.5 11.6
Net Response -10.4 -6.7 -8.3 -9.0 -8.9 -5.9 -4.1 -5.0 -7.9 -5.1
Inventory of raw material and finished goods ‘Below average’ is optimistic.

Table 8: Assessment & Expectations for Employment Outlook
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2015-16 1337 15.3 9.4 75.3 5.8 15.7 6.1 78.2 9.6
Q4:2015-16 1342 14.2 10.1 75.7 4.1 15.3 6.7 78.0 8.6
Q1:2016-17 1275 15.0 9.7 75.3 5.3 15.1 8.0 76.9 7.1
Q2:2016-17 723 14.5 7.7 77.8 6.8 15.8 7.7 76.5 8.1
Q3:2016-17 1221 13.5 9.7 76.8 3.8 14.7 5.6 79.7 9.1
            12.1 6.9 81.0 5.2
‘Increase’ in employment is optimistic.

Table 9: Assessment & Expectation for Overall Financial Situation
(Percentage responses)
Quarter Total response Assessment Expectation
Better Worsen No change Net response Better Worsen No change Net response
Q3:2015-16 1337 26.2 12.9 60.9 13.2 34.8 8.8 56.4 26.0
Q4:2015-16 1342 26.6 12.3 61.0 14.3 33.3 8.5 58.2 24.7
Q1:2016-17 1275 27.9 11.9 60.1 16.0 33.1 8.3 58.6 24.8
Q2:2016-17 723 27.7 11.3 61.1 16.4 35.2 8.3 56.5 26.9
Q3:2016-17 1221 26.0 14.1 59.9 11.9 33.9 6.8 59.3 27.1
            34.1 9.5 56.4 24.6
‘Better’ overall financial situation is optimistic.

Table 10: Assessment & Expectation for Working Capital Finance Requirement
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2015-16 1337 30.3 6.7 62.9 23.6 29.9 4.3 65.8 25.5
Q4:2015-16 1342 31.7 6.8 61.4 24.9 30.1 4.9 65.0 25.2
Q1:2016-17 1275 28.1 7.2 64.7 20.8 30.0 5.4 64.6 24.6
Q2:2016-17 723 26.0 6.6 67.4 19.4 29.7 5.6 64.7 24.1
Q3:2016-17 1221 28.9 6.9 64.3 22.0 28.1 4.1 67.8 24.1
            29.2 5.3 65.5 23.9
‘Increase’ in working capital finance is optimistic.

Table 11: Assessment & Expectation for Availability of Finance
(Percentage responses)
Indicator Options Assessment Expectation
Q3:2015-16 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2016-17 Q4:2015-16 Q1:20 16-17 Q2:20 16-17 Q3:20 16-17 Q4:20 16-17
Availability of finance (from internal accruals) Improve 22.3 21.7 22.4 21.0 21.6 26.1 25.6 25.9 25.2 25.4
No Change 68.3 69.0 68.6 70.5 66.7 67.8 68.3 68.3 69.8 66.6
Worsen 9.4 9.3 8.9 8.5 11.7 6.1 6.1 5.8 5.0 8.0
Net Response 12.9 12.4 13.5 12.5 9.9 20.0 19.5 20.1 20.2 17.4
Availability of Finance (from banks & other sources) Improve 19.2 18.3 18.7 18.3 19.6 20.6 21.6 21.7 21.8 22.5
No Change 74.4 74.2 73.6 76.1 72.5 74.7 73.2 72.7 74.9 71.9
Worsen 6.3 7.5 7.7 5.6 7.9 4.7 5.2 5.5 3.3 5.6
Net Response 12.9 10.8 11.0 12.7 11.7 16.0 16.4 16.2 18.5 16.9
Availability of Finance (from overseas, if applicable) Improve 11.3 8.8 10.6 10.0 9.1 12.1 10.0 12.2 10.3 10.0
No Change 83.5 85.3 84.4 86.6 86.1 84.1 85.4 84.1 87.7 86.5
Worsen 5.2 5.9 5.0 3.3 4.8 3.9 4.7 3.8 2.0 3.5
Net Response 6.2 2.9 5.6 6.7 4.3 8.2 5.3 8.4 8.3 6.5
‘Improvement’ in availability of finance is optimistic.

Table 12: Assessment & Expectation for Cost of Finance
(Percentage responses)
Quarter Total response Assessment Expectation
Decrease Increase No change Net response Decrease Increase No change Net response
Q3:2015-16 1337 14.0 19.4 66.6 -5.4 10.2 17.9 71.9 -7.6
Q4:2015-16 1342 11.0 19.7 69.2 -8.7 10.5 15.9 73.6 -5.5
Q1:2016-17 1275 10.1 19.9 70.0 -9.8 8.8 17.1 74.1 -8.3
Q2:2016-17 723 9.4 17.3 73.3 -7.9 9.9 17.4 72.6 -7.5
Q3:2016-17 1221 12.9 16.1 71.1 -3.2 9.4 16.9 73.8 -7.5
            14.5 14.8 70.8 -0.3
Decrease’ in cost of finance is optimistic.

Table 13: Assessment & Expectation for Cost of Raw Material
(Percentage responses)
Quarter Total response Assessment Expectation
Decrease Increase No change Net response Decrease Increase No change Net response
Q3:2015-16 1337 12.4 38.7 48.9 -26.4 7.1 35.2 57.7 -28.1
Q4:2015-16 1342 13.3 37.7 49.0 -24.4 6.9 34.2 58.9 -27.3
Q1:2016-17 1275 7.5 41.5 51.0 -34.0 8.3 36.0 55.7 -27.7
Q2:2016-17 723 4.2 43.1 52.7 -39.0 6.0 37.5 56.5 -31.5
Q3:2016-17 1221 6.4 44.6 48.9 -38.2 5.5 37.4 57.1 -32.0
            5.1 39.4 55.6 -34.3
‘Decrease’ in cost of raw material is optimistic.

Table 14: Assessment & Expectation for Selling Price
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2015-16 1337 16.7 18.0 65.3 -1.4 18.3 12.2 69.5 6.2
Q4:2015-16 1342 15.9 19.6 64.5 -3.7 17.9 10.7 71.4 7.2
Q1:2016-17 1275 18.9 13.2 67.9 5.7 20.2 13.1 66.7 7.1
Q2:2016-17 723 16.5 14.5 69.0 2.0 19.8 9.7 70.5 10.1
Q3:2016-17 1221 16.9 16.2 66.9 0.7 17.2 10.4 72.4 6.8
            16.8 10.9 72.3 5.9
‘Increase’ in selling price is optimistic.

Table 15: Assessment & Expectation for Profit Margin
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2015-16 1337 14.3 29.5 56.2 -15.3 18.4 19.7 61.9 -1.3
Q4:2015-16 1342 13.4 30.1 56.5 -16.7 18.1 20.1 61.8 -2.0
Q1:2016-17 1275 14.4 27.4 58.2 -12.8 18.5 22.1 59.4 -3.6
Q2:2016-17 723 15.8 28.8 55.4 -12.9 19.1 19.3 61.6 -0.2
Q3:2016-17 1221 15.3 28.3 56.4 -13.0 19.5 19.4 61.2 0.1
            18.5 21.3 60.2 -2.8
‘Increase’ in profit margin is optimistic.

Table 16: Assessment & Expectation for Overall Business Situation
(Percentage responses)
Quarter Total response Assessment Expectation
Better Worsen No change Net response Better Worsen No change Net response
Q3:2015-16 1337 31.3 14.0 54.7 17.4 39.9 8.3 51.8 31.6
Q4:2015-16 1342 30.8 14.6 54.6 16.2 40.9 7.6 51.5 33.3
Q1:2016-17 1275 33.3 12.1 54.6 21.2 39.4 8.9 51.7 30.5
Q2:2016-17 723 31.4 14.0 54.6 17.4 41.2 7.7 51.1 33.5
Q3:2016-17 1221 29.4 16.4 54.2 13.0 40.1 8.7 51.2 31.3
            39.4 11.5 49.1 27.9
‘Better’ Overall Business Situation is optimistic.

Table 17: Assessment & Expectation for Salary/Other Remuneration
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2015-16 1337 28.4 3.2 68.4 25.1 24.3 2.3 73.4 22.0
Q4:2015-16 1342 30.5 3.0 66.5 27.5 25.0 2.8 72.2 22.1
Q1:2016-17 1275 34.9 2.9 62.2 32.0 33.2 2.9 63.9 30.3
Q2:2016-17 723 35.8 3.0 61.2 32.8 30.0 3.1 66.9 26.9
Q3:2016-17 1221 28.9 2.8 68.3 26.1 26.6 2.0 71.4 24.7
            25.0 3.3 71.8 21.7
‘Increase in Salary / other remuneration’ is optimistic.

Table 18: Business Expectation Index (BEI)
Quarter BEI-Assessment Quarter BEI-Expectation Quarter
Q3:2015-16 103.6 113.4
Q4:2015-16 103.0 114.2
Q1:2016-17 104.0 110.9
Q2:2016-17 102.7 112.9
Q3:2016-17 101.1 112.9
Q4:2016-17   111.1

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.


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