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Date : Feb 05, 2021
Industrial Outlook Survey of the Manufacturing Sector for Q3:2020-21

Today, the Reserve Bank released the results of the 92nd round of the Industrial Outlook Survey (IOS) conducted during October-December 2020. The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q3:2020-21 and their expectations for Q4:2020-21.1 In all, 1011 companies responded in this round of the survey. Owing to uncertainty driven by the COVID-19 pandemic, an additional block was included in this round of the survey for assessing the outlook on key parameters for two quarters ahead as well as three quarters ahead.

Highlights:

A. Assessment for Q3: 2020-21

  • Manufacturing companies assessed further strengthening of production, order books and employment during Q3:2020-21, driven by easing of lockdowns related to the COVID-19 pandemic and re-opening of businesses (Table A).

  • Sentiments on financial situation improved in terms of availability of finance from banks and internal sources.

  • Manufacturers perceived higher cost pressures stemming from purchase of inputs and salary expenses.

  • Despite increase in selling prices, enterprises indicated pressures on profit margins due to higher cost burden.

  • After remaining in contraction zone in the previous two quarters, the business assessment index (BAI)2 moved up into expansion zone and stood at 108.6 in Q3:2020-21 from 96.2 in Q2:2020-21 (Chart 1).

B. Expectations for Q4: 2020-21

  • Manufacturers expect expansion in production volumes, new orders and job landscape to continue in Q4:2020-21.

  • Manufacturers’ overall financial situation portrayed further optimism.

  • Respondents expect higher pressures from cost of finance, purchase of raw materials and salary outgo in Q4:2020-21.

  • Selling prices are expected to increase in Q4:2020-21 but the sentiments on profit margins remained subdued on the back of higher input cost pressures.

  • The business expectations index (BEI) increased further to 114.1 in Q4:2020-21 from 111.4 in Q3:2020-21 (Chart 1).

C. Expectations for Q1:2021-22 and Q2:2021-22

  • Manufacturers polled further improvement in key demand indicators and overall business situation in Q1:2021-22 and Q2:2021-22 (Table B).

  • Going forward, capacity utilisation and employment conditions are expected to improve further.

  • Respondents expected gradual hardening of selling prices as input prices are likely to exert higher pressure.

Chart 1

Table A: Summary of Net responses3 on Survey Parameters
(per cent)
Parameters Assessment period Expectation period
Q2:2020-21 Q3:2020-21 Q3:2020-21 Q4:2020-21
Production 10.3 27.2 26.4 31.5
Order Books 5.9 20.5 20.6 27.3
Pending Orders 22.8 12.0 14.2 9.2
Capacity Utilisation 1.6 17.3 17.5 24.1
Inventory of Raw Materials -5.8 -5.4 -4.2 -6.7
Inventory of Finished Goods -8.7 -4.6 -5.3 -6.3
Exports -0.6 4.6 7.5 13.0
Imports -2.8 6.3 4.9 8.5
Employment -9.2 3.9 2.4 7.2
Financial Situation (Overall) 7.8 27.5 25.3 33.0
Availability of Finance (from internal accruals) 3.8 17.4 15.1 22.8
Availability of Finance (from banks & other sources) 12.0 14.9 13.6 15.3
Availability of Finance (from overseas, if applicable) -0.6 0.8 0.6 3.8
Cost of Finance -2.8 0.2 -6.7 -5.0
Cost of Raw Material -38.0 -51.6 -32.1 -42.7
Salary/ Other Remuneration -2.8 -14.0 -9.0 -16.0
Selling Price -5.8 9.4 -0.2 10.7
Profit Margin -26.5 -11.8 -12.0 -2.4
Overall Business Situation 11.8 32.9 32.9 40.7
Note: Please see the excel file for time series data

Table B: Business Expectations of Select Parameters for extended period – Net response
(per cent)
Parameters Round 91 Round 92
Q3:2020-21 Q4:2020-21 Q1:2021-22 Q2:2021-22
Overall Business Situation 32.9 40.7 43.4 43.5
Production 26.4 31.5 38.9 38.8
Order Books 20.6 27.3 31.9 34.2
Capacity Utilisation 17.5 24.1 31.4 30.8
Employment 2.4 7.2 14.4 16.2
Cost of Raw Materials -32.1 -42.7 -44.5 -42.6
Selling Prices -0.2 10.7 18.9 20.1

Table 1: Assessment and Expectations for Production
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 28.7 28.3 43.1 0.4 34.8 21.0 44.2 13.9
Q4:2019-20 860 33.6 19.8 46.6 13.8 35.4 18.2 46.4 17.2
Q1:2020-21 802 8.3 72.2 19.5 -63.9 37.8 14.1 48.1 23.7
Q2:2020-21 959 42.4 32.1 25.5 10.3 41.4 30.2 28.5 11.2
Q3:2020-21 1,011 46.6 19.4 34.0 27.2 43.4 16.9 39.7 26.4
Q4:2020-21           43.7 12.2 44.0 31.5
‘Increase’ in production is optimistic.
Note: The sum of components may not add up to total due to rounding off (This is applicable for all tables).

Table 2: Assessment and Expectations for Order Books
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 26.9 26.6 46.5 0.3 34.3 20.4 45.3 13.9
Q4:2019-20 860 30.1 20.1 49.9 10.0 33.6 17.0 49.3 16.6
Q1:2020-21 802 8.9 63.8 27.3 -54.9 33.5 15.1 51.4 18.4
Q2:2020-21 959 37.2 31.3 31.5 5.9 36.4 28.4 35.3 8.0
Q3:2020-21 1,011 40.3 19.8 40.0 20.5 39.2 18.6 42.2 20.6
Q4:2020-21           41.1 13.7 45.2 27.3
‘Increase’ in order books is optimistic.

Table 3: Assessment and Expectations for Pending Orders
(Percentage responses)
Quarter Total response Assessment Expectations
Above Normal Below Normal Normal Net response Above Normal Below Normal Normal Net response
Q3:2019-20 775 3.4 25.5 71.1 22.1 3.9 18.3 77.8 14.4
Q4:2019-20 860 4.1 18.5 77.4 14.4 3.7 19.5 76.8 15.9
Q1:2020-21 802 6.1 47.3 46.6 41.2 4.6 16.2 79.1 11.6
Q2:2020-21 959 7.2 30.1 62.7 22.8 5.8 31.8 62.4 26.0
Q3:2020-21 1,011 7.2 19.2 73.6 12.0 7.4 21.5 71.1 14.2
Q4:2020-21           5.6 14.8 79.7 9.2
Pending orders ‘Below Normal’ is optimistic.

Table 4: Assessment and Expectations for Capacity Utilisation (Main Product)
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 17.5 25.8 56.7 -8.3 24.4 20.0 55.6 4.4
Q4:2019-20 860 21.0 19.0 60.0 2.0 23.1 15.2 61.6 7.9
Q1:2020-21 802 6.0 67.6 26.3 -61.6 25.5 14.2 60.3 11.3
Q2:2020-21 959 31.8 30.2 37.9 1.6 36.2 28.6 35.2 7.6
Q3:2020-21 1,011 35.3 18.0 46.7 17.3 32.4 15.0 52.6 17.5
Q4:2020-21           34.7 10.6 54.7 24.1
‘Increase’ in capacity utilisation is optimistic.

Table 5: Assessment and Expectations for Level of CU (compared to the average in last 4 quarters)
(Percentage responses)
Quarter Total response Assessment Expectations
Above Normal Below Normal Normal Net response Above Normal Below Normal Normal Net response
Q3:2019-20 775 6.6 26.9 66.5 -20.3 9.3 21.7 69.0 -12.4
Q4:2019-20 860 7.6 21.6 70.7 -14.0 7.9 18.5 73.6 -10.6
Q1:2020-21 802 2.7 63.6 33.7 -60.9 9.1 16.4 74.5 -7.3
Q2:2020-21 959 5.9 43.4 50.8 -37.5 5.8 39.2 55.0 -33.5
Q3:2020-21 1,011 11.3 23.2 65.5 -12.0 8.3 25.5 66.2 -17.2
Q4:2020-21           11.7 15.3 73.0 -3.6
‘Above Normal’ in Level of capacity utilisation is optimistic.

Table 6: Assessment and Expectations for Assessment of Production Capacity (with regard to expected demand in next 6 months)
(Percentage responses)
Quarter Total response Assessment Expectations
More than adequate Less than adequate Adequate Net response More than adequate Less than adequate Adequate Net response
Q3:2019-20 775 15.8 11.7 72.5 4.2 15.3 12.4 72.2 2.9
Q4:2019-20 860 14.3 9.5 76.2 4.8 14.6 11.4 74.0 3.2
Q1:2020-21 802 19.0 24.5 56.5 -5.6 13.7 8.8 77.5 4.9
Q2:2020-21 959 15.9 17.2 66.9 -1.3 18.7 17.3 64.0 1.3
Q3:2020-21 1,011 14.1 11.2 74.6 2.9 15.9 12.3 71.8 3.5
Q4:2020-21           14.2 9.3 76.5 5.0
‘More than adequate’ in Assessment of Production Capacity is optimistic.

Table 7: Assessment and Expectations for Exports
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 18.3 19.2 62.5 -0.9 24.3 17.0 58.7 7.3
Q4:2019-20 860 20.1 14.3 65.5 5.8 22.4 13.8 63.9 8.6
Q1:2020-21 802 8.7 50.4 40.9 -41.7 22.5 11.5 66.0 11.0
Q2:2020-21 959 25.3 25.9 48.8 -0.6 23.1 26.9 50.0 -3.8
Q3:2020-21 1,011 22.5 17.9 59.5 4.6 25.1 17.6 57.3 7.5
Q4:2020-21           25.1 12.1 62.7 13.0
‘Increase’ in exports is optimistic.

Table 8: Assessment and Expectations for Imports
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 13.2 12.3 74.5 0.9 18.1 11.7 70.2 6.4
Q4:2019-20 860 16.0 11.3 72.7 4.7 15.7 10.2 74.1 5.4
Q1:2020-21 802 7.6 40.5 51.8 -32.9 16.9 10.3 72.8 6.6
Q2:2020-21 959 18.4 21.2 60.5 -2.8 19.9 21.0 59.1 -1.0
Q3:2020-21 1,011 19.6 13.3 67.2 6.3 17.3 12.4 70.4 4.9
Q4:2020-21           17.7 9.1 73.2 8.5
‘Increase’ in imports is optimistic.

Table 9: Assessment and Expectations for level of Raw Materials Inventory
(Percentage responses)
Quarter Total response Assessment Expectations
Above average Below average Average Net response Above average Below average Average Net response
Q3:2019-20 775 13.9 7.7 78.4 -6.2 13.2 6.6 80.3 -6.6
Q4:2019-20 860 12.9 7.8 79.3 -5.1 10.6 7.0 82.4 -3.6
Q1:2020-21 802 21.3 13.5 65.2 -7.8 9.8 6.9 83.3 -2.9
Q2:2020-21 959 16.7 10.9 72.3 -5.8 15.5 9.7 74.8 -5.9
Q3:2020-21 1,011 13.1 7.7 79.3 -5.4 11.5 7.4 81.1 -4.2
Q4:2020-21           12.0 5.3 82.8 -6.7
‘Below average’ Inventory of raw materials is optimistic.

Table 10: Assessment and Expectations for level of Finished Goods Inventory
(Percentage responses)
Quarter Total response Assessment Expectations
Above average Below average Average Net response Above average Below average Average Net response
Q3:2019-20 775 18.3 7.3 74.4 -11.0 15.7 5.0 79.3 -10.7
Q4:2019-20 860 13.3 6.7 80.0 -6.5 12.9 6.2 80.9 -6.7
Q1:2020-21 802 27.0 14.3 58.7 -12.6 10.4 6.2 83.4 -4.3
Q2:2020-21 959 18.9 10.2 70.9 -8.7 17.2 9.5 73.3 -7.6
Q3:2020-21 1,011 12.8 8.1 79.1 -4.6 12.4 7.2 80.4 -5.3
Q4:2020-21           11.5 5.1 83.4 -6.3
‘Below average’ Inventory of finished goods is optimistic.

Table 11: Assessment and Expectations for Employment
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 12.2 13.8 74.0 -1.6 12.1 11.4 76.5 0.7
Q4:2019-20 860 13.4 11.3 75.3 2.0 12.5 10.7 76.8 1.8
Q1:2020-21 802 3.9 32.5 63.7 -28.6 14.3 9.0 76.7 5.2
Q2:2020-21 959 11.8 21.0 67.2 -9.2 11.0 18.7 70.3 -7.7
Q3:2020-21 1,011 15.5 11.6 73.0 3.9 14.5 12.1 73.3 2.4
Q4:2020-21           14.6 7.3 78.1 7.2
‘Increase’ in employment is optimistic.

Table 12: Assessment and Expectations for Overall Financial Situation
(Percentage responses)
Quarter Total response Assessment Expectations
Better Worsen No change Net response Better Worsen No change Net response
Q3:2019-20 775 24.6 19.3 56.1 5.3 30.6 14.8 54.7 15.8
Q4:2019-20 860 26.5 13.6 59.9 12.8 31.2 11.7 57.1 19.5
Q1:2020-21 802 8.7 57.6 33.6 -48.9 33.1 8.8 58.0 24.3
Q2:2020-21 959 31.8 23.9 44.3 7.8 34.6 23.2 42.2 11.4
Q3:2020-21 1,011 40.4 12.9 46.7 27.5 36.7 11.4 51.9 25.3
Q4:2020-21           39.2 6.2 54.6 33.0
‘Better’ overall financial situation is optimistic.

Table 13: Assessment and Expectations for Working Capital Finance Requirement
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 27.4 8.7 63.9 18.7 29.3 5.5 65.3 23.8
Q4:2019-20 860 28.3 6.4 65.4 21.9 27.3 5.7 66.9 21.6
Q1:2020-21 802 36.9 18.8 44.4 18.1 28.8 5.7 65.5 23.1
Q2:2020-21 959 33.3 11.4 55.3 21.9 37.2 11.5 51.3 25.7
Q3:2020-21 1,011 30.7 7.1 62.2 23.7 31.3 6.9 61.8 24.4
Q4:2020-21           28.5 3.7 67.8 24.8
‘Increase’ in working capital finance is optimistic.

Table 14: Assessment and Expectations for Availability of Finance (from Internal Accruals)
(Percentage responses)
Quarter Total response Assessment Expectations
Improve Worsen No change Net response Improve Worsen No change Net response
Q3:2019-20 775 19.0 12.4 68.6 6.6 21.4 8.1 70.5 13.2
Q4:2019-20 860 23.1 9.5 67.4 13.7 22.1 8.8 69.1 13.4
Q1:2020-21 802 7.2 38.0 54.8 -30.8 23.1 6.0 70.9 17.0
Q2:2020-21 959 22.2 18.4 59.5 3.8 22.5 16.1 61.3 6.4
Q3:2020-21 1,011 27.2 9.7 63.1 17.4 24.8 9.7 65.5 15.1
Q4:2020-21           28.3 5.6 66.1 22.8
‘Improvement’ in availability of finance is optimistic.

Table 15: Assessment and Expectations for Availability of Finance (from banks and other sources)
(Percentage responses)
Quarter Total response Assessment Expectations
Improve Worsen No change Net response Improve Worsen No change Net response
Q3:2019-20 775 14.6 7.4 78.1 7.2 18.7 6.0 75.3 12.7
Q4:2019-20 860 16.9 6.1 76.9 10.8 17.7 5.9 76.4 11.7
Q1:2020-21 802 12.9 15.8 71.3 -3.0 18.1 6.4 75.4 11.7
Q2:2020-21 959 20.3 8.3 71.4 12.0 20.4 9.8 69.8 10.6
Q3:2020-21 1,011 21.0 6.1 72.8 14.9 19.4 5.8 74.8 13.6
Q4:2020-21           19.6 4.3 76.1 15.3
‘Improvement’ in availability of finance is optimistic.

Table 16: Assessment and Expectations for Availability of Finance (from overseas, if applicable)
(Percentage responses)
Quarter Total response Assessment Expectations
Improve Worsen No change Net response Improve Worsen No change Net response
Q3:2019-20 775 7.5 5.0 87.6 2.5 9.2 4.1 86.7 5.1
Q4:2019-20 860 7.2 4.4 88.4 2.8 7.3 4.3 88.4 3.0
Q1:2020-21 802 3.2 13.5 83.3 -10.3 7.9 4.0 88.1 4.0
Q2:2020-21 959 6.8 7.4 85.7 -0.6 7.9 9.9 82.2 -2.0
Q3:2020-21 1,011 5.8 5.0 89.2 0.8 7.2 6.6 86.1 0.6
Q4:2020-21           7.2 3.4 89.3 3.8
‘Improvement’ in availability of finance is optimistic.

Table 17: Assessment and Expectations for Cost of Finance
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 16.9 8.2 74.9 -8.7 18.5 8.4 73.1 -10.0
Q4:2019-20 860 15.0 8.4 76.6 -6.6 15.0 7.1 77.9 -7.9
Q1:2020-21 802 16.3 15.9 67.8 -0.4 12.7 6.6 80.6 -6.1
Q2:2020-21 959 17.5 14.7 67.7 -2.8 17.6 10.9 71.5 -6.7
Q3:2020-21 1,011 13.3 13.5 73.2 0.2 15.5 8.8 75.7 -6.7
Q4:2020-21           13.3 8.3 78.4 -5.0
‘Decrease’ in cost of finance is optimistic.

Table 18: Assessment and Expectations for Cost of Raw Materials
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 37.2 11.1 51.7 -26.1 37.0 6.2 56.8 -30.8
Q4:2019-20 860 41.1 7.1 51.8 -34.1 35.6 5.6 58.8 -30.0
Q1:2020-21 802 39.9 10.7 49.4 -29.3 38.9 5.3 55.7 -33.6
Q2:2020-21 959 46.1 8.2 45.7 -38.0 37.8 5.7 56.5 -32.0
Q3:2020-21 1,011 55.5 3.9 40.6 -51.6 36.7 4.6 58.7 -32.1
Q4:2020-21           45.2 2.6 52.2 -42.7
‘Decrease’ in cost of raw materials is optimistic.

Table 19: Assessment and Expectations for Salary/Other Remuneration
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 30.6 3.6 65.8 -27.0 25.0 1.8 73.2 -23.2
Q4:2019-20 860 27.1 2.3 70.6 -24.8 25.1 3.0 71.9 -22.1
Q1:2020-21 802 12.4 22.0 65.5 9.6 35.8 2.7 61.5 -33.1
Q2:2020-21 959 15.7 12.9 71.4 -2.8 16.5 12.5 70.9 -4.0
Q3:2020-21 1,011 20.8 6.8 72.3 -14.0 15.8 6.8 77.4 -9.0
Q4:2020-21           19.9 3.9 76.2 -16.0
‘Decrease’ in Salary / other remuneration is optimistic.

Table 20: Assessment and Expectations for Selling Price
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 12.0 21.6 66.4 -9.6 18.6 14.0 67.3 4.6
Q4:2019-20 860 16.4 13.9 69.7 2.5 15.2 13.0 71.9 2.2
Q1:2020-21 802 9.5 26.6 64.0 -17.1 18.0 9.7 72.3 8.3
Q2:2020-21 959 13.9 19.7 66.4 -5.8 12.9 18.9 68.1 -6.0
Q3:2020-21 1,011 21.9 12.5 65.6 9.4 12.8 13.0 74.3 -0.2
Q4:2020-21           19.6 8.9 71.5 10.7
‘Increase’ in selling price is optimistic.

Table 21: Assessment and Expectations for Profit Margin
(Percentage responses)
Quarter Total response Assessment Expectations
Increase Decrease No change Net response Increase Decrease No change Net response
Q3:2019-20 775 12.3 34.4 53.3 -22.1 17.6 26.1 56.3 -8.5
Q4:2019-20 860 15.8 27.4 56.8 -11.6 16.3 26.4 57.3 -10.2
Q1:2020-21 802 5.0 61.8 33.2 -56.8 17.5 20.4 62.1 -2.9
Q2:2020-21 959 15.3 41.8 43.0 -26.5 13.7 40.5 45.8 -26.8
Q3:2020-21 1,011 17.4 29.1 53.5 -11.8 14.7 26.7 58.6 -12.0
Q4:2020-21           17.8 20.1 62.1 -2.4
‘Increase’ in profit margin is optimistic.

Table 22: Assessment and Expectations for Overall Business Situation
(Percentage responses)
Quarter Total response Assessment Expectations
Better Worsen No change Net response Better Worsen No change Net response
Q3:2019-20 775 26.4 22.9 50.8 3.5 37.3 15.6 47.1 21.7
Q4:2019-20 860 31.6 15.8 52.6 15.7 35.8 13.2 50.9 22.6
Q1:2020-21 802 8.3 68.5 23.2 -60.2 38.6 10.4 50.9 28.2
Q2:2020-21 959 39.6 27.9 32.5 11.8 41.0 25.3 33.6 15.7
Q3:2020-21 1,011 46.7 13.8 39.6 32.9 45.7 12.8 41.6 32.9
Q4:2020-21           48.2 7.6 44.2 40.7
‘Better’ Overall Business Situation is optimistic.

Table 23: Business Sentiments
Quarter Business Assessment Index (BAI) Business Expectations Index (BEI)
Q3:2019-20 93.0 102.2
Q4:2019-20 102.2 105.0
Q1:2020-21 55.3 108.8
Q2:2020-21 96.2 99.5
Q3:2020-21 108.6 111.4
Q4:2020-21   114.1

1 The survey results reflect the views of the respondents, which are not necessarily shared by the Reserve Bank of India. This round of the survey was launched on November 2, 2020 and results were compiled with data received till December 31, 2020. The results of the 91st round of the survey (Q2:2020-21) were released on October 9, 2020 on the RBI’s website.

2 For each survey round, two 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.

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