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Date : Oct 04, 2016
Overall Business Sentiments for Q3:2016-17 remained Unchanged: RBI’s Industrial Outlook Survey finds

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.

Summary Table
Net response1 (in %) comparison over previous quarter
Parameters Assessment period Expectation period
Q1:2016-17 Q2:2016-17 Q2:2016-17 Q3:2016-17
Production 17.3 10.8 29.0 28.9
Order Books 15.6 9.0 27.3 24.7
Pending Orders 11.0 13.7 6.6 6.2
Capacity Utilisation 6.7 3.6 16.8 17.2
Exports 6.2 -0.8 16.8 11.2
Imports 8.4 7.0 9.6 8.7
Employment 5.3 6.8 8.1 9.1
Financial Situation 16.0 16.4 26.9 27.1
Availability of Finance (from internal accruals) 13.5 12.5 20.1 20.2
Cost of Finance -9.8 -7.9 -7.5 -7.5
Cost of Raw Material -34.0 -39.0 -31.5 -32.0
Selling Price 5.7 2.0 10.1 6.8
Profit Margin -12.8 -12.4 -0.2 0.1
Overall Business Situation 21.2 17.4 33.5 31.3
Salary 32.0 32.8 26.9 24.7
Business Expectation Index2 104.0 102.7 112.9 112.9

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
Q2:2015-16 1304 34.1 18.9 46.9 15.2 40.3 11.4 48.3 28.9
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           40.9 12.0 47.2 28.9
‘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
Q2:2015-16 1304 31.1 19.7 49.3 11.4 37.4 11.6 51.0 25.8
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           36.4 11.7 51.9 24.7
‘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
Q2:2015-16 1304 18.6 5.1 76.3 13.5 14.6 6.1 79.4 8.5
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           12.9 6.7 80.4 6.2
Pending orders ‘Below Normal’ is optimistic.

Table 4: Assessment & Expectation for Capacity Utilisation
(Percentage responses)
Indicator Options Assessment Expectation
Q2:2015-16 Q3:2015-16 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2015-16 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2016-17
Capacity Utilisation (CU)-(main product) Increase 21.7 23.4 24.6 21.8 21.5 27.8 27.8 26.3 26.5 27.4
No Change 60.2 60.4 57.9 63.1 60.7 62.0 63.5 60.8 63.9 62.5
Decrease 18.1 16.3 17.5 15.1 17.9 10.2 8.7 12.9 9.7 10.2
Net Response 3.6 7.1 7.1 6.7 3.6 17.5 19.1 13.4 16.8 17.2
Level of CU (compared to the average in last 4 quarters) Above normal 8.8 8.7 9.8 10.9 9.3 9.2 9.4 9.8 10.3 10.8
Normal 71.9 72.6 71.0 72.5 75.3 77.6 78.2 75.6 77.8 77.7
Below Normal 19.3 18.6 19.2 16.6 15.4 13.1 12.4 14.6 11.9 11.5
Net Response -10.5 -9.9 -9.4 -5.7 -6.0 -3.9 -3.0 -4.8 -1.6 -0.7
Assessment of Prod. Capacity (with regard to expected demand in next 6 months) More than adequate 14.1 14.3 13.9 14.6 14.4 14.4 14.5 13.8 13.6 14.2
Adequate 78.3 77.2 77.7 76.8 77.3 78.8 78.5 79.1 78.8 78.4
Less than adequate 7.7 8.5 8.5 8.6 8.2 6.8 7.0 7.1 7.6 7.4
Net Response 6.4 5.8 5.4 6.0 6.2 7.5 7.5 6.7 6.0 6.8
‘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
Q2:2015-16 1304 23.5 17.8 58.7 5.7 27.5 8.0 64.5 19.6
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           24.3 13.2 62.5 11.2
‘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
Q2:2015-16 1304 18.8 10.4 70.7 8.4 18.0 8.1 73.9 9.9
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           18.1 9.4 72.5 8.7
‘Increase’ in imports is optimistic.

Table 7: Assessment & Expectations for level of Inventory (Raw Material and Finished Goods)
(Percentage responses)
Indicator Options Assessment Expectation
Q2:2015-16 Q3:2015-16 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2015-16 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2016-17
Inventory of raw material Below average 7.4 6.5 7.0 6.0 7.0 5.5 5.3 5.9 5.8 5.2
Average 78.9 81.4 80.5 81.7 81.2 83.9 84.8 84.4 83.5 84.5
Above average 13.7 12.2 12.5 12.4 11.8 10.6 9.9 9.7 10.8 10.3
Net Response -6.3 -5.7 -5.5 -6.4 -4.8 -5.1 -4.7 -3.8 -5.0 -5.2
Inventory of finished goods Below average 6.9 7.0 8.7 7.0 6.7 6.3 6.2 7.0 7.1 4.5
Average 75.6 75.7 75.9 77.7 77.5 82.1 81.6 81.9 80.8 83.0
Above average 17.5 17.4 15.4 15.3 15.8 11.6 12.1 11.1 12.1 12.5
Net Response -10.6 -10.4 -6.7 -8.3 -9.0 -5.3 -5.9 -4.1 -5.0 -7.9
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
Q2:2015-16 1304 15.2 9.3 75.5 5.9 16.5 6.6 76.8 9.9
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           14.7 5.6 79.7 9.1
‘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
Q2:2015-16 1304 27.5 14.0 58.6 13.5 34.2 9.1 56.7 25.1
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           33.9 6.8 59.3 27.1
‘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
Q2:2015-16 1304 30.2 6.0 63.8 24.2 29.6 4.7 65.7 25.0
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           28.1 4.1 67.8 24.1
‘Increase’ in working capital finance is optimistic.

Table 11: Assessment & Expectation for Availability of Finance
(Percentage responses)
Indicator Options Assessment Expectation
Q2:2015-16 Q3:2015-16 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2015-16 Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2016-17
Availability of finance (from internal accruals) Improve 21.1 22.3 21.7 22.4 21.0 23.5 26.1 25.6 25.9 25.2
No Change 68.1 68.3 69.0 68.6 70.5 69.8 67.8 68.3 68.3 69.8
Worsen 10.8 9.4 9.3 8.9 8.5 6.7 6.1 6.1 5.8 5.0
Net Response 10.4 12.9 12.4 13.5 12.5 16.8 20.0 19.5 20.1 20.2
Availability of Finance (from banks & other sources) Improve 19.3 19.2 18.3 18.7 18.3 20.0 20.6 21.6 21.7 21.8
No Change 75.0 74.4 74.2 73.6 76.1 76.3 74.7 73.2 72.7 74.9
Worsen 5.7 6.3 7.5 7.7 5.6 3.8 4.7 5.2 5.5 3.3
Net Response 13.6 12.9 10.8 11.0 12.7 16.2 16.0 16.4 16.2 18.5
Availability of Finance (from overseas, if applicable) Improve 11.1 11.3 8.8 10.6 10.0 11.5 12.1 10.0 12.2 10.3
No Change 83.9 83.5 85.3 84.4 86.6 85.0 84.1 85.4 84.1 87.7
Worsen 5.0 5.2 5.9 5.0 3.3 3.5 3.9 4.7 3.8 2.0
Net Response 6.1 6.2 2.9 5.6 6.7 8.0 8.2 5.3 8.4 8.3
‘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
Q2:2015-16 1304 9.4 20.8 69.7 -11.4 9.9 18.7 71.4 -8.7
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           9.4 16.9 73.8 -7.5
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
Q2:2015-16 1304 13.2 38.1 48.7 -24.8 5.2 38.1 56.6 -32.9
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           5.5 37.4 57.1 -32.0
‘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
Q2:2015-16 1304 15.8 19.8 64.4 -4.0 19.5 11.6 68.8 7.9
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           17.2 10.4 72.4 6.8
‘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
Q2:2015-16 1304 13.1 30.0 56.9 -16.9 18.5 20.0 61.5 -1.6
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           19.5 19.4 61.2 0.1
‘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
Q2:2015-16 1304 30.2 16.3 53.6 13.9 40.3 8.2 51.5 32.0
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           40.1 8.7 51.2 31.3
‘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
Q2:2015-16 1304 31.7 2.8 65.6 28.9 30.0 2.7 67.3 27.3
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           26.6 2.0 71.4 24.7
‘Increase in Salary / other remuneration’ is optimistic.

Table 18: Business Expectation Index (BEI)
Quarter BEI-Assessment Quarter BEI-Expectation Quarter
Q2:2015-16 102.4 113.1
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   112.9

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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