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Date : Apr 05, 2018
Industrial Outlook Survey of the Manufacturing Sector for Q4:2017-18

Today, the Reserve Bank released results of the 81st round of the Industrial Outlook Survey (IOS) conducted in January-March 2018. The Survey captures qualitative assessments of business sentiments in the Indian manufacturing sector for Q4:2017-18 and expectations for Q1:2018-191. Responses were received from 1250 companies in this round of the survey.

Highlights:

1. Assessment for Q4: 2017-18

1.1 Respondents were optimistic on demand conditions in Q4:2017-18, as reflected in their assessment of all the major parameters like production, order books, capacity utilisation, imports, exports and employment.

1.2 Respondents also found the overall financial situation to have improved with positive sentiments on availability of finance, especially from internal accruals, outweighing higher cost.

1.3 Persistent pressure from the cost of raw materials, coupled with inadequate pricing power, led to further lowering of the profit margin of the sampled companies.

1.4 Overall, the business sentiment of the Indian manufacturing sector improved as seen in the Business Expectations Index (BEI)2 rising from 109.8 in Q3:2017-18 to 112.4 in Q4:2017-18.

2. Expectations for Q1: 2018-19

2.1 The upturn anticipated in demand conditions in the previous two quarters dipped in Q1:2018-19 with a subdued outlook on all indicators barring exports and imports.

2.2 Sentiment on availability of finance was also less optimistic for Q1:2018-19.

2.3 Input price pressure (of both raw materials and the capital) and sluggish demand conditions may lead to lower profit margins in Q1:2018-19.

2.4 About 10 percent of the respondents are expected to raise the selling price of their products.

2.5 The BEI (expectation) declined from 115.8 in Q4:2017-18 to 114.6 in Q1:2018-19.

Summary Table
Net response3 (in %) comparison over previous quarter
Parameters Assessment period Expectation period
Q3:2017-18 Q4:2017-18 Q4:2017-18 Q1:2018-19
Production 22.1 27.3 34.1 29.5
Order Books 19.2 24.5 30.3 28.4
Pending Orders 9.5 10.3 5.7 7.6
Capacity Utilisation 11.3 14.8 19.5 17.9
Exports 7.8 12.5 16.6 18.6
Imports 9.1 11.0 13.5 13.8
Employment 8.4 9.4 11.7 11.1
Financial Situation (Overall) 17.1 22.4 28.6 28.0
Availability of Finance (from internal accruals) 13.8 14.7 21.4 18.2
Availability of Finance (from banks & other sources) 14.0 11.9 16.5 14.6
Availability of Finance (from overseas, if applicable) 4.0 3.4 6.6 4.3
Cost of Finance -3.1 -10.3 -4.1 -12.2
Cost of Raw Materials -42.7 -49.5 -34.0 -39.0
Selling Price 4.5 6.7 7.9 10.4
Profit Margin -10.0 -9.9 0.1 -0.7
Overall Business Situation 23.9 30.2 36.1 36.9
Salary 27.2 26.6 22.9 35.0

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#
Q4:2016-17 1244 35.8 17.8 46.4 18.0 41.1 13.3 45.6 27.8
Q1:2017-18 1250 34.5 18.5 47.0 16.0 41.6 11.7 46.7 29.9
Q2:2017-18 1141 34.9 18.5 46.6 16.4 42.2 12.0 45.8 30.2
Q3:2017-18 1299 36.8 14.7 48.5 22.1 43.4 9.1 47.5 34.3
Q4:2017-18 1250 40.7 13.4 45.9 27.3 42.5 8.4 49.7 34.1
Q1:2018-19           40.4 11.0 48.6 29.5
‘Increase’ in production is optimistic.
@: Due to rounding off percentage may not add up to 100.
#: 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
Q4:2016-17 1244 34.8 19.2 46.0 15.6 35.1 14.2 50.7 20.9
Q1:2017-18 1250 32.7 19.0 48.3 13.7 39.5 11.5 49.0 28.0
Q2:2017-18 1141 31.8 19.7 48.5 12.1 39.7 11.7 48.6 28.0
Q3:2017-18 1299 35.4 16.2 48.4 19.2 39.6 9.6 50.8 29.9
Q4:2017-18 1250 38.9 14.4 46.7 24.5 40.5 10.2 49.3 30.3
Q1:2018-19           38.8 10.4 50.8 28.4
‘Increase’ in order books is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

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
Q4:2016-17 1244 18.1 5.1 76.8 13.0 15.3 5.0 79.7 10.3
Q1:2017-18 1250 17.0 5.7 77.3 11.3 13.4 4.9 81.8 8.5
Q2:2017-18 1141 17.9 4.2 77.9 13.7 12.5 6.5 81.0 6.0
Q3:2017-18 1299 16.2 6.7 77.1 9.5 11.4 4.7 83.9 6.7
Q4:2017-18 1250 14.8 4.5 80.7 10.3 12.5 6.8 80.7 5.7
Q1:2018-19           12.6 4.9 82.5 7.6
Pending orders ‘Below Normal’ is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 4: Assessment & Expectation for Capacity Utilisation (Main Product)
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q4:2016-17 1244 25.9 15.7 58.4 10.2 27.6 11.2 61.2 16.4
Q1:2017-18 1250 22.5 15.4 62.1 7.1 28.1 10.9 61.0 17.2
Q2:2017-18 1141 22.9 15.8 61.3 7.1 27.6 11.3 61.1 16.3
Q3:2017-18 1299 23.9 12.7 63.4 11.3 28.8 8.0 63.2 20.8
Q4:2017-18 1250 27.4 12.6 60.0 14.8 28.4 8.9 62.7 19.5
Q1:2018-19           27.8 9.8 62.4 17.9
‘Increase’ in capacity utilisation is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 5: Assessment & Expectation for Level of CU (compared to the average in last 4 quarters)
(Percentage responses)
Quarter Total response Assessment Expectation
Above Normal Below Normal Normal Net response Above Normal Below Normal Normal Net response
Q4:2016-17 1244 9.3 16.1 74.6 -6.8 10.6 12.9 76.5 -2.3
Q1:2017-18 1250 8.4 15.1 76.5 -6.7 9.9 12.2 77.9 -2.3
Q2:2017-18 1141 9.7 15.6 74.7 -6.0 9.7 10.8 79.5 -1.1
Q3:2017-18 1299 10.3 14.1 75.6 -3.8 11.4 9.6 79.0 1.8
Q4:2017-18 1250 12.6 13.5 73.9 -0.9 13.0 10.7 76.3 2.3
Q1:2018-19           13.0 10.6 76.5 2.4
‘Above Normal’ in Level of capacity utilisation is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 6: Assessment & Expectation for Assessment of Production Capacity (with regard to expected demand in next 6 months)
(Percentage responses)
Quarter Total response Assessment Expectation
More than adequate Less than adequate Adequate Net response More than adequate Less than adequate Adequate Net response
Q4:2016-17 1244 14.1 7.1 78.8 7.0 11.9 7.4 80.7 4.5
Q1:2017-18 1250 12.3 7.4 80.3 4.9 13.3 6.7 79.9 6.6
Q2:2017-18 1141 10.4 7.4 82.2 3.0 12.2 6.6 81.2 5.6
Q3:2017-18 1299 11.8 7.1 81.1 4.7 11.1 6.5 82.4 4.6
Q4:2017-18 1250 12.2 6.3 81.5 5.9 12.9 6.9 80.2 6.0
Q1:2018-19           13.0 6.0 81.0 7.0
‘More than adequate’ in Assessment of Production Capacity is optimistic.Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 7: Assessment & Expectation for Exports
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q4:2016-17 1244 24.3 17.7 58.0 6.6 25.3 13.2 61.5 12.1
Q1:2017-18 1250 22.2 18.8 59.0 3.4 26.5 11.3 62.2 15.2
Q2:2017-18 1141 24.2 15.4 60.4 8.8 27.9 11.6 60.5 16.3
Q3:2017-18 1299 22.5 14.7 62.8 7.8 27.6 8.6 63.8 19.0
Q4:2017-18 1250 26.3 13.8 59.9 12.5 25.4 8.8 65.8 16.6
Q1:2018-19           28.4 9.8 61.8 18.6
‘Increase’ in exports is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 8: Assessment & Expectation for Imports
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q4:2016-17 1244 17.5 10.7 71.8 6.8 17.7 9.3 73.1 8.4
Q1:2017-18 1250 17.4 10.3 72.3 7.1 17.3 7.2 75.5 10.1
Q2:2017-18 1141 17.1 8.2 74.7 8.9 18.6 7.9 73.5 10.7
Q3:2017-18 1299 18.2 9.1 72.7 9.1 17.8 5.0 77.2 12.8
Q4:2017-18 1250 19.8 8.7 71.5 11.0 19.7 6.2 74.1 13.5
Q1:2018-19           19.6 5.8 74.7 13.8
‘Increase’ in imports is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 9: Assessment & Expectation for level of Raw Materials Inventory
(Percentage responses)
Quarter Total response Assessment Expectation
Below average Above average Average Net response Below average Above average Average Net response
Q4:2016-17 1244 6.9 12.4 80.7 -5.5 6.8 9.0 84.2 -2.2
Q1:2017-18 1250 6.7 12.2 81.1 -5.5 6.1 8.7 85.2 -2.6
Q2:2017-18 1141 6.2 13.1 80.7 -6.9 6.1 10.7 83.2 -4.6
Q3:2017-18 1299 6.0 14.6 79.4 -8.6 4.3 10.4 85.4 -6.1
Q4:2017-18 1250 5.9 14.0 80.1 -8.1 6.0 11.5 82.5 -5.5
Q1:2018-19           5.7 10.9 83.5 -5.2
‘Below average’ Inventory of raw materials is optimistic.Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 10: Assessment & Expectation for level of Finished Goods Inventory
(Percentage responses)
Quarter Total response Assessment Expectation
Below average Above average Average Net response Below average Above average Average Net response
Q4:2016-17 1244 7.3 16.6 76.1 -9.3 6.5 11.6 81.9 -5.1
Q1:2017-18 1250 6.8 14.2 79.0 -7.5 6.4 10.7 82.8 -4.3
Q2:2017-18 1141 7.1 15.9 77.0 -8.8 6.0 11.6 82.4 -5.6
Q3:2017-18 1299 6.9 14.5 78.6 -7.6 6.2 10.0 83.8 -3.8
Q4:2017-18 1250 6.5 13.3 80.2 -6.8 6.5 10.9 82.6 -4.4
Q1:2018-19           5.8 10.4 83.9 -4.6
‘Below average’ Inventory of finished goods is optimistic.Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 11: Assessment & Expectations for Employment Outlook
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q4:2016-17 1244 15.9 9.3 74.8 6.6 12.1 6.9 81.0 5.2
Q1:2017-18 1250 14.6 9.2 76.2 5.4 15.9 6.6 77.5 9.3
Q2:2017-18 1141 15.5 8.2 76.3 7.3 15.2 6.5 78.3 8.7
Q3:2017-18 1299 15.8 7.4 76.8 8.4 15.8 5.3 78.9 10.4
Q4:2017-18 1250 17.5 8.1 74.4 9.4 17.0 5.3 77.7 11.7
Q1:2018-19           17.7 6.6 75.7 11.1
‘Increase’ in employment is optimistic.Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 12: 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
Q4:2016-17 1244 30.6 13.6 55.8 17.0 34.1 9.5 56.4 24.6
Q1:2017-18 1250 30.9 11.8 57.3 19.1 37.9 7.0 55.1 30.9
Q2:2017-18 1141 29.0 13.2 57.8 15.8 35.6 7.7 56.6 27.9
Q3:2017-18 1299 28.6 11.4 60.0 17.2 35.3 6.6 58.1 28.7
Q4:2017-18 1250 31.9 9.5 58.6 22.4 35.2 6.6 58.2 28.6
Q1:2018-19           34.5 6.5 59.0 28.0
‘Better’ overall financial situation is optimistic.Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 13: 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
Q4:2016-17 1244 30.2 5.6 64.2 24.6 29.2 5.3 65.5 23.9
Q1:2017-18 1250 29.3 5.7 65.0 23.6 29.4 5.1 65.5 24.3
Q2:2017-18 1141 29.7 6.3 64.0 23.4 29.4 5.7 65.0 23.7
Q3:2017-18 1299 34.4 5.0 60.6 29.4 30.5 4.1 65.4 26.4
Q4:2017-18 1250 35.5 5.3 59.2 30.1 32.4 3.6 64.0 28.8
Q1:2018-19           30.8 5.3 63.9 25.4
‘Increase’ in working capital finance is optimistic.Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 14: Assessment & Expectation for Availability of Finance (from Internal Accruals)
(Percentage responses)
Quarter Total response Assessment Expectation
Improve Worsen No change Net response Improve Worsen No change Net response
Q4:2016-17 1244 25.6 10.3 64.1 15.3 25.4 8.0 66.6 17.4
Q1:2017-18 1250 23.5 9.5 67.0 14.1 27.5 6.2 66.3 21.3
Q2:2017-18 1141 23.2 9.5 67.3 13.7 26.8 6.4 66.9 20.4
Q3:2017-18 1299 22.2 8.4 69.4 13.8 25.8 5.6 68.6 20.2
Q4:2017-18 1250 23.7 8.9 67.4 14.7 26.6 5.2 68.2 21.4
Q1:2018-19           25.1 6.9 67.9 18.2
‘Improvement’ in availability of finance is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 15: Assessment & Expectation for Availability of Finance (from banks & other sources)
(Percentage responses)
Quarter Total response Assessment Expectation
Improve Worsen No change Net response Improve Worsen No change Net response
Q4:2016-17 1244 21.3 7.6 71.1 13.7 22.5 5.6 71.9 16.9
Q1:2017-18 1250 21.0 6.1 72.9 14.9 24.8 4.9 70.3 19.9
Q2:2017-18 1141 19.8 6.1 74.1 13.8 21.5 4.6 73.9 17.0
Q3:2017-18 1299 19.8 5.8 74.4 14.0 18.6 4.5 77.0 14.1
Q4:2017-18 1250 18.8 7.0 74.2 11.9 20.9 4.4 74.7 16.5
Q1:2018-19           20.9 6.4 72.7 14.6
‘Improvement’ in availability of finance is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 16: Assessment & Expectation for Availability of Finance (from overseas, if applicable)
(Percentage responses)
Quarter Total response Assessment Expectation
Improve Worsen No change Net response Improve Worsen No change Net response
Q4:2016-17 1244 8.1 3.3 88.6 4.8 10.0 3.5 86.5 6.5
Q1:2017-18 1250 9.5 3.7 86.8 5.8 9.8 2.8 87.4 7.0
Q2:2017-18 1141 8.0 3.0 89.0 5.0 10.9 3.9 85.2 7.0
Q3:2017-18 1299 7.9 3.9 88.2 4.0 7.2 3.0 89.8 4.1
Q4:2017-18 1250 8.0 4.6 87.4 3.4 9.2 2.6 88.2 6.6
Q1:2018-19           8.6 4.3 87.1 4.3
‘Improvement’ in availability of finance is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 17: 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
Q4:2016-17 1244 15.8 16.7 67.5 -0.9 14.5 14.8 70.8 -0.3
Q1:2017-18 1250 13.6 14.8 71.6 -1.2 12.9 15.4 71.7 -2.5
Q2:2017-18 1141 14.0 14.5 71.5 -0.5 10.9 14.7 74.5 -3.8
Q3:2017-18 1299 11.6 14.5 73.9 -3.1 11.9 14.1 74.0 -2.2
Q4:2017-18 1250 18.1 7.9 74.0 -10.3 9.8 13.9 76.3 -4.1
Q1:2018-19           18.7 6.4 74.9 -12.2
‘Decrease’ in cost of finance is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 18: Assessment & Expectation for Cost of Raw Materials
(Percentage responses)
Quarter Total response Assessment Expectation
Decrease Increase No change Net response Decrease Increase No change Net response
Q4:2016-17 1244 3.5 51.4 45.1 -47.9 5.1 39.4 55.6 -34.3
Q1:2017-18 1250 5.1 47.2 47.7 -42.1 4.1 42.0 54.0 -37.9
Q2:2017-18 1141 5.0 46.8 48.2 -41.8 4.0 40.4 55.6 -36.5
Q3:2017-18 1299 5.2 47.9 46.9 -42.7 5.7 37.6 56.7 -31.9
Q4:2017-18 1250 3.3 52.8 43.9 -49.5 4.3 38.3 57.4 -34.0
Q1:2018-19           3.7 42.7 53.6 -39.0
‘Decrease’ in cost of raw materials is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 19: Assessment & Expectation for Selling Price
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q4:2016-17 1244 21.4 13.0 65.6 8.4 16.8 10.9 72.3 5.9
Q1:2017-18 1250 20.1 15.1 64.8 5.0 21.6 9.1 69.3 12.5
Q2:2017-18 1141 16.1 16.2 67.7 -0.1 18.9 11.0 70.2 7.9
Q3:2017-18 1299 17.7 13.2 69.1 4.5 17.5 10.6 71.9 7.0
Q4:2017-18 1250 19.3 12.6 68.1 6.7 17.4 9.5 73.1 7.9
Q1:2018-19           19.2 8.9 71.9 10.4
‘Increase’ in selling price is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 20: Assessment & Expectation for Profit Margin
(Percentage responses)
Quarter Total response Assessment Expectation
Increase Decrease No change Net response Increase Decrease No change Net response
Q4:2016-17 1244 16.7 27.8 55.5 -11.1 18.5 21.3 60.2 -2.8
Q1:2017-18 1250 15.7 28.2 56.1 -12.5 20.3 19.2 60.4 1.1
Q2:2017-18 1141 14.5 28.5 57.0 -14.0 20.3 20.0 59.7 0.3
Q3:2017-18 1299 15.4 25.4 59.2 -10.0 19.6 17.8 62.5 1.8
Q4:2017-18 1250 16.2 26.1 57.7 -9.9 18.8 18.7 62.5 0.1
Q1:2018-19           18.0 18.7 63.3 -0.7
‘Increase’ in profit margin is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 21: 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
Q4:2016-17 1244 36.3 14.3 49.4 22.0 39.4 11.5 49.1 27.9
Q1:2017-18 1250 34.4 13.0 52.6 21.4 43.6 7.6 48.8 36.0
Q2:2017-18 1141 31.7 14.4 53.9 17.3 42.7 9.0 48.4 33.7
Q3:2017-18 1299 35.1 11.2 53.7 23.9 42.9 6.0 51.1 36.9
Q4:2017-18 1250 39.2 9.0 51.8 30.2 42.5 6.4 51.2 36.1
Q1:2018-19           42.7 5.8 51.5 36.9
‘Better’ Overall Business Situation is optimistic. Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 22: 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
Q4:2016-17 1244 30.0 2.7 67.3 27.3 25.0 3.3 71.8 21.7
Q1:2017-18 1250 42.1 2.7 55.2 39.4 38.8 2.2 59.0 36.6
Q2:2017-18 1141 36.7 2.2 61.1 34.5 34.5 2.5 63.0 32.0
Q3:2017-18 1299 29.4 2.2 68.4 27.2 25.9 2.0 72.1 23.9
Q4:2017-18 1250 28.8 2.2 69.0 26.6 25.2 2.3 72.5 22.9
Q1:2018-19           36.8 1.8 61.3 35.0
‘Increase in Salary / other remuneration’ is optimistic.Footnotes ‘@’ and ‘#’ given in Table 1 are applicable here.

Table 23: Business Expectations Index (BEI)
Quarter BEI-Assessment Quarter BEI-Expectation Quarter
Q4:2016-17 106.0 111.1
Q1:2017-18 105.4 114.2
Q2:2017-18 103.7 113.3
Q3:2017-18 109.8 115.0
Q4:2017-18 112.4 115.8
Q1:2018-19   114.6

1The survey responses are those of the respondents and are not necessarily shared by the Reserve Bank of India. The 80th round (Q3:2017-18) survey results were released on January 18, 2018 on the RBI website.

2The Business Expectations Index (BEI) is a composite indicator calculated as a weighted (share of GVA of different industry group) net response of nine business indicators. The nine indicators considered for the computation of the 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 snapshot of the business outlook in every quarter. BEI takes values between 0 and 200, and 100 is the threshold separating expansion from contraction.

3Net 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 Eis 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.

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