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Date : Apr 06, 2017
Industrial Outlook Survey of the Manufacturing Sector for Q4:2016-17

The 77th round of the Industrial Outlook Survey (IOS) conducted by the Reserve Bank of India provides a qualitative assessment of the business situation by companies in the Indian manufacturing sector for Q4:2016-17 and their expectations for Q1:2017-181. Responses were received from 1244 companies in this round of the survey.

Highlights:

1. Assessment for Q4:2016-17

1.1 There is substantial improvement in sentiments on demand conditions, with respondents more optimistic about production, order books and capacity utilisation in Q4: 2016-17 than a quarter ago.

1.2 The overall financial situation and availability of finance from banks and other sources were also perceived to have improved.

1.3 While respondents were slightly more optimistic than a quarter ago about selling prices, continued pressure from rising cost of raw materials adversely affected profit margins, which remained in the contraction zone.

1.4 Overall, business sentiments in the Indian manufacturing sector improved marginally the Business Expectations Index (BEI)2 rose from 101.1 in Q3:2016-17 to 106.0 in Q4:2016-17.

2. Expectations for Q1: 2017-18

2.1 The outlook on business sentiments for Q1: 2017-18 largely remained similar to the previous quarter, with order books expected to improve, the cost of raw materials expected to increase further, but with greater optimism on pass through to the selling price, leaving the profit margin unaffected.

2.2 The BEI for Q1:2017-18 rose to 114.2 from 111.1 in the previous quarter.

Summary Table
Net response3 (in %) comparison over previous quarter
Parameters Assessment period Expectation period
Q3:2016-17 Q4:2016-17 Q4:2016-17 Q1:2017-18
Production 10.8 18.0 27.8 29.9
Order Books 7.1 15.6 20.9 28.0
Pending Orders 13.7 13.0 10.3 8.5
Capacity Utilisation 2.3 10.2 16.4 17.2
Exports 4.4 6.6 12.1 15.2
Imports 6.2 6.8 8.4 10.1
Employment 3.8 6.6 5.2 9.3
Financial Situation 11.9 17.0 24.6 30.9
Availability of Finance (from internal accruals) 9.9 15.3 17.4 21.3
Availability of Finance (from banks & other sources) 11.7 13.7 16.9 19.9
Availability of Finance (from overseas, if applicable) 4.3 4.8 6.5 7.0
Cost of Finance -3.2 -0.9 -0.3 -2.5
Cost of Raw Material -38.2 -47.9 -34.3 -37.9
Selling Price 0.7 8.4 5.9 12.5
Profit Margin -13.0 -11.1 -2.8 1.1
Overall Business Situation 13.0 22.0 27.9 36.0
Salary 26.1 27.3 21.7 36.6
Business Expectation Index 101.1 106.0 111.1 114.2

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
Q4:2015-16 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
Q4:2016-17 1244 35.8 17.8 46.4 18.0 41.1 13.3 45.6 27.8
Q1:2017-18           41.6 11.7 46.7 29.9
‘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
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
Q4:2016-17 1244 34.8 19.2 46.0 15.6 35.1 14.2 50.7 20.9
Q1:2017-18           39.5 11.5 49.0 28.0
‘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
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 1222 19.0 5.3 75.7 13.7 12.9 6.7 80.4 6.2
Q4:2016-17 1244 18.1 5.1 76.9 13.0 15.3 5.0 79.7 10.3
Q1:2017-18           13.4 4.9 81.8 8.5
Pending orders ‘Below Normal’ is optimistic.

Table 4: Assessment & Expectation for Capacity Utilisation
(Percentage responses)
Indicator Options Assessment Expectation
Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2016-17 Q4:2016-17 Q1:2016-17 Q2:2016-17 Q3:2016-17 Q4:2016-17 Q1:2017-18
Capacity Utilisation (CU)-(main product) Increase 24.6 21.8 21.5 20.2 25.9 26.3 26.5 27.4 27.6 28.1
No Change 57.9 63.1 60.7 61.9 58.4 60.8 63.9 62.5 61.2 61.0
Decrease 17.5 15.1 17.9 17.9 15.7 12.9 9.7 10.2 11.2 10.9
Net Response 7.1 6.7 3.6 2.3 10.2 13.4 16.8 17.2 16.4 17.2
Level of CU (compared to the average in last 4 quarters) Above normal 9.8 10.9 9.3 8.7 9.3 9.8 10.3 10.8 10.6 9.9
Normal 71.0 72.5 75.3 74.9 74.6 75.6 77.8 77.7 76.5 77.9
Below Normal 19.2 16.6 15.4 16.4 16.1 14.6 11.9 11.5 12.9 12.2
Net Response -9.4 -5.7 -6.0 -7.7 -6.8 -4.8 -1.6 -0.7 -2.3 -2.3
Assessment of Prod. Capacity (with regard to expected demand in next 6 months) More than adequate 13.9 14.6 14.4 12.3 14.1 13.8 13.6 14.2 11.9 13.3
Adequate 77.7 76.8 77.3 78.6 78.7 79.1 78.8 78.4 80.7 79.9
Less than adequate 8.5 8.6 8.2 9.1 7.1 7.1 7.6 7.4 7.4 6.7
Net Response 5.4 6.0 6.2 3.2 7.0 6.7 6.0 6.8 4.5 6.6
‘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
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
Q4:2016-17 1244 24.3 17.7 58.0 6.6 25.3 13.2 61.5 12.1
Q1:2017-18           26.5 11.3 62.2 15.2
‘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
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
Q4:2016-17 1244 17.5 10.7 71.8 6.8 17.7 9.3 73.1 8.4
Q1:2017-18           17.3 7.2 75.5 10.1
‘Increase’ in imports is optimistic.

Table 7: Assessment & Expectations for level of Inventory (Raw Material and Finished Goods)
(Percentage responses)
Indicator Options Assessment Expectation
Q4:20 15-16 Q1:20 16-17 Q2:20 16-17 Q3:20 16-17 Q4:20 16-17 Q1:20 16-17 Q2:20 16-17 Q3:20 16-17 Q4:20 16-17 Q1:20 17-18
Inventory of raw material Below average 7.0 6.0 7.0 7.3 6.9 5.9 5.8 5.2 6.8 6.1
Average 80.5 81.7 81.2 81.1 80.7 84.4 83.5 84.5 84.2 85.2
Above average 12.5 12.4 11.8 11.7 12.4 9.7 10.8 10.3 9.0 8.7
Net Response -5.5 -6.4 -4.8 -4.4 -5.5 -3.8 -5.0 -5.2 -2.2 -2.6
Inventory of finished goods Below average 8.7 7.0 6.7 6.4 7.3 7.0 7.1 4.5 6.5 6.4
Average 75.9 77.7 77.5 78.3 76.1 81.9 80.8 83.0 81.9 82.8
Above average 15.4 15.3 15.8 15.3 16.6 11.1 12.1 12.5 11.6 10.7
Net Response -6.7 -8.3 -9.0 -8.9 -9.3 -4.1 -5.0 -7.9 -5.1 -4.3
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
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
Q4:2016-17 1244 15.9 9.3 74.8 6.6 12.1 6.9 81.0 5.2
Q1:2017-18           15.9 6.6 77.5 9.3
‘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
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
Q4:2016-17 1244 30.6 13.6 55.9 17.0 34.1 9.5 56.4 24.6
Q1:2017-18           37.9 7.0 55.1 30.9
‘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
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
Q4:2016-17 1244 30.2 5.6 64.2 24.6 29.2 5.3 65.5 23.9
            29.4 5.1 65.5 24.3
‘Increase’ in working capital finance is optimistic.

Table 11: Assessment & Expectation for Availability of Finance
(Percentage responses)
Indicator Options Assessment Expectation
Q4:2015-16 Q1:2016-17 Q2:2016-17 Q3:2016-17 Q4:2016-17 Q1:20 16-17 Q2:20 16-17 Q3:20 16-17 Q4:20 16-17 Q1:20 17-18
Availability of finance (from internal accruals) Improve 21.7 22.4 21.0 21.6 25.6 25.6 25.9 25.2 25.4 27.5
No Change 69.0 68.6 70.5 66.7 64.1 68.3 68.3 69.8 66.6 66.3
Worsen 9.3 8.9 8.5 11.7 10.3 6.1 5.8 5.0 8.0 6.2
Net Response 12.4 13.5 12.5 9.9 15.3 19.5 20.1 20.2 17.4 21.3
Availability of Finance (from banks & other sources) Improve 18.3 18.7 18.3 19.6 21.3 21.6 21.7 21.8 22.5 24.8
No Change 74.2 73.6 76.1 72.5 71.1 73.2 72.7 74.9 71.9 70.3
Worsen 7.5 7.7 5.6 7.9 7.6 5.2 5.5 3.3 5.6 4.9
Net Response 10.8 11.0 12.7 11.7 13.7 16.4 16.2 18.5 16.9 19.9
Availability of Finance (from overseas, if applicable) Improve 8.8 10.6 10.0 9.1 8.1 10.0 12.2 10.3 10.0 9.8
No Change 85.3 84.4 86.6 86.1 88.6 85.4 84.1 87.7 86.5 87.4
Worsen 5.9 5.0 3.3 4.8 3.3 4.7 3.8 2.0 3.5 2.8
Net Response 2.9 5.6 6.7 4.3 4.8 5.3 8.4 8.3 6.5 7.0
‘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
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
Q4:2016-17 1244 15.8 16.7 67.6 -0.9 14.5 14.8 70.8 -0.3
Q1:2017-18           12.9 15.4 71.7 -2.5
‘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
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
Q4:2016-17 1244 3.5 51.4 45.0 -47.9 5.1 39.4 55.6 -34.3
Q1:2017-18           4.1 42.0 54.0 -37.9
‘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
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
Q4:2016-17 1244 21.4 13.0 65.6 8.4 16.8 10.9 72.3 5.9
Q1:2017-18           21.6 9.1 69.3 12.5
‘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
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
Q4:2016-17 1244 16.7 27.8 55.5 -11.1 18.5 21.3 60.2 -2.8
Q1:2017-18           20.3 19.2 60.4 1.1
‘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
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
Q4:2016-17 1244 36.3 14.3 49.5 22.0 39.4 11.5 49.1 27.9
Q1:2017-18           43.6 7.6 48.8 36.0
‘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
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 1222 28.9 2.8 68.3 26.1 26.6 2.0 71.4 24.7
Q4:2016-17 1244 30.0 2.7 67.3 27.3 25.0 3.3 71.8 21.7
Q1:2017-18           38.8 2.2 59 36.6
‘Increase in Salary / other remuneration’ is optimistic.

Table 18: Business Expectation Index (BEI)
Quarter BEI-Assessment Quarter BEI-Expectation Quarter
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
Q4:2016-17 106.0 111.1
Q1:2017-18   114.2

1 The survey responses are those of the respondents and are not necessarily shared by the Reserve Bank of India. The 76th round (Q3:2016-17) survey results were released on January 25, 2017 on the RBI website.

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.

3 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.


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