Today, the Reserve Bank released the results of 104th round of its quarterly Industrial Outlook Survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q3:2023-24 and their expectations for Q4:2023-24¹ as well as outlook on select parameters for subsequent two quarters. In all, 1,040 companies responded in this round of the survey, which was conducted during Q3:2023-24.

Highlights:

A. Assessment for Q3:2023-24

• Manufacturing companies reported positive demand conditions during Q3:2023-24 as reflected in their assessment of production, capacity utilisation, pending orders, employment and overall business situation; they were, however, less sanguine when compared to the previous survey round (Table A).

• Pressures from cost of raw material, financing cost and salary outgo are assessed to have marginally eased.

• Selling prices and profit margins are gauged to have gone up during the quarter, though the sentiments were somewhat tempered when compared to the assessment in the previous quarter.

• The business assessment index (BAI)² in the manufacturing sector moderated to 113.9 in Q3:2023-24 from 115.0 in the previous quarter (Chart 1).

B. Expectations for Q4:2023-24

• Manufacturers remained optimistic on demand situation during Q4:2023-24, though the confidence was relatively lower when compared to the previous survey round (Table A).

• Input costs are likely to increase, though the pressures are likely to be lower.

• In synchrony with the positive demand prospects, selling prices and profit margin are expected to rise.

• The business expectations index (BEI) remained elevated at 130.3 in Q4:2023-24, though it moderated from 135.4 in the previous quarter (Chart 1).

C. Expectations for Q1:2024-25 and Q2:2024-25

• Manufacturing companies remain highly optimistic on production, capacity utilisation, order books, employment conditions and overall business situation (Table B).

• Input cost pressures are likely to persist during H1:2024-25 and selling prices are expected to move in tandem.

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 October 06, 2023.

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.