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Date : Aug 02, 2017
Industrial Outlook Survey of the Manufacturing Sector for Q1:2017-18

Today, the Reserve Bank released results of the 78th round of the Industrial Outlook Survey (IOS) conducted in April-June 2017. The Survey captures qualitative assessments of the business situation by companies in the Indian manufacturing sector for Q1:2017-18 and their expectations for Q2:2017-181. Responses were received from 1250 companies in this round of the survey.

Highlights:

1. Assessment for Q1: 2017-18

1.1 Respondents were less optimistic about demand conditions in Q1:2017-18 than a quarter ago as reflected in all the major parameters – production; order books; capacity utilisation; exports; and, employment.

1.2 Optimism on the overall financial situation rose marginally, mainly due to better availability of finance from banks and other sources.

1.3 Respondents continued to face raw material cost pressure which could not be passed on in view of weak pricing power.

1.4 Input costs and higher salary payments squeezed profit margins in the sector.

1.5 Overall, business sentiments in the Indian manufacturing sector, as reflected in the Business Expectations Index (BEI)2, declined from 106.0 in Q4:2016-17 to 105.4 in Q1:2017-18.

2. Expectations for Q2: 2017-18

2.1 The outlook for demand parameters for Q2:2017-18 was not impacted and remained similar to that observed in the last quarter. However, the overall financial situation was perceived to be slightly less optimistic in Q2:2017-18 due to the sector having inadequate pricing power.

2.2 The BEI for Q2:2017-18 was lower at 113.3 than 114.2 in the previous quarter.

Summary Table
Net response3 (in %) comparison over previous quarter
Parameters Assessment period Expectation period
Q4:2016-17 Q1:2017-18 Q1:2017-18 Q2:2017-18
Production 18.0 16.0 29.9 30.2
Order Books 15.6 13.7 28.0 28.0
Pending Orders 13.0 11.3 8.5 6.0
Capacity Utilisation 10.2 7.1 17.2 16.3
Exports 6.6 3.4 15.2 16.3
Imports 6.8 7.1 10.1 10.7
Employment 6.6 5.4 9.3 8.7
Financial Situation (Overall) 17.0 19.1 30.9 27.9
Availability of Finance (from internal accruals) 15.3 14.1 21.3 20.4
Availability of Finance (from banks & other sources) 13.7 14.9 19.9 16.9
Availability of Finance (from overseas, if applicable) 4.8 5.8 7.0 7.0
Cost of Finance -0.9 -1.2 -2.5 -3.8
Cost of Raw Material -47.9 -42.1 -37.9 -36.4
Selling Price 8.4 5.0 12.5 7.9
Profit Margin -11.1 -12.5 1.1 0.3
Overall Business Situation 22.0 21.4 36.0 33.7
Salary 27.3 39.4 36.6 32.0
Business Expectations Index 106.0 105.4 114.2 113.3

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#
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 1250 34.5 18.5 46.9 16.0 41.6 11.7 46.7 29.9
Q2:2017-18           42.2 12.0 45.8 30.2
‘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
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 1250 32.7 19.0 48.3 13.7 39.5 11.5 49.0 28.0
Q2:2017-18           39.7 11.7 48.6 28.0
‘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
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 1250 17.0 5.7 77.3 11.3 13.4 4.9 81.8 8.5
Q2:2017-18           12.5 6.5 81.0 6.0
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
Q1:2016-17 1275 21.8 15.1 63.1 6.7 26.3 12.9 60.8 13.4
Q2:2016-17 723 21.5 17.9 60.7 3.6 26.5 9.7 63.9 16.8
Q3:2016-17 1222 20.2 17.9 61.9 2.3 27.4 10.2 62.5 17.2
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 62.0 7.1 28.1 10.9 61.0 17.2
Q2:2017-18           27.6 11.3 61.1 16.3
‘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
Q1:2016-17 1275 10.9 16.6 72.5 -5.7 9.8 14.6 75.6 -4.8
Q2:2016-17 723 9.3 15.4 75.3 -6.0 10.3 11.9 77.8 -1.6
Q3:2016-17 1222 8.7 16.4 74.9 -7.7 10.8 11.5 77.7 -0.7
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           9.7 10.8 79.5 -1.1
‘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
Q1:2016-17 1275 14.6 8.6 76.8 6.0 13.8 7.1 79.1 6.7
Q2:2016-17 723 14.4 8.2 77.3 6.2 13.6 7.6 78.8 6.0
Q3:2016-17 1222 12.3 9.1 78.6 3.2 14.2 7.4 78.4 6.8
Q4:2016-17 1244 14.1 7.1 78.7 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           12.2 6.6 81.2 5.6
‘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
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 1250 22.2 18.8 59.0 3.4 26.5 11.3 62.2 15.2
Q2:2017-18           27.9 11.6 60.5 16.3
‘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
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 1250 17.4 10.3 72.2 7.1 17.3 7.2 75.5 10.1
Q2:2017-18           18.6 7.9 73.5 10.7
‘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
Q1:2016-17 1275 6.0 12.4 81.7 -6.4 5.9 9.7 84.4 -3.8
Q2:2016-17 723 7.0 11.8 81.2 -4.8 5.8 10.8 83.5 -5.0
Q3:2016-17 1221 7.3 11.7 81.2 -4.4 5.2 10.3 84.5 -5.2
Q4:2016-17 1244 6.9 12.4 81.1 -5.5 6.8 9.0 84.2 -2.2
Q1:2017-18 1250 6.7 12.2 81.2 -5.5 6.1 8.7 85.2 -2.6
Q2:2017-18           6.1 10.7 83.2 -4.6
‘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
Q1:2016-17 1275 7.0 15.3 77.7 -8.3 7.0 11.1 81.9 -4.9
Q2:2016-17 723 6.7 15.8 77.5 -9.0 7.1 12.1 80.8 -5.0
Q3:2016-17 1221 6.4 15.3 78.3 -8.9 4.5 12.5 83.0 -7.9
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           6.0 11.6 82.4 -5.6
‘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
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 1250 14.6 9.2 76.2 5.4 15.9 6.6 77.5 9.3
Q2:2017-18           15.2 6.5 78.3 8.7
‘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
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 1250 30.9 11.8 57.2 19.1 37.9 7.0 55.1 30.9
Q2:2017-18           35.6 7.7 56.6 27.9
‘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
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
Q1:2017-18 1250 29.3 5.7 65.0 23.6 29.4 5.1 65.5 24.3
Q2:2017-18           29.4 5.7 65.0 23.7
‘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
Q1:2016-17 1275 22.4 8.9 68.6 13.5 25.6 6.1 68.3 19.5
Q2:2016-17 723 21.0 8.5 70.5 12.5 25.9 5.8 68.3 20.1
Q3:2016-17 1221 21.6 11.7 66.7 9.9 25.2 5.0 69.8 20.2
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           26.8 6.4 66.9 20.4
‘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
Q1:2016-17 1275 18.7 7.7 73.6 11.0 21.6 5.2 73.2 16.4
Q2:2016-17 723 18.3 5.6 76.1 12.7 21.7 5.5 72.7 16.2
Q3:2016-17 1221 19.6 7.9 72.5 11.7 21.8 3.3 74.9 18.5
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           21.5 4.6 73.9 16.9
‘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
Q1:2016-17 1275 10.6 5.0 84.4 5.6 10.0 4.7 85.4 5.3
Q2:2016-17 723 10.0 3.3 86.6 6.7 12.2 3.8 84.1 8.4
Q3:2016-17 1221 9.1 4.8 86.1 4.3 10.3 2.0 87.7 8.3
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           10.9 3.9 85.2 7.0
‘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
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 1250 13.6 14.8 71.6 -1.2 12.9 15.4 71.7 -2.5
Q2:2017-18           10.9 14.7 74.5 -3.8
‘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
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 1250 5.1 47.2 47.8 -42.1 4.1 42.0 54.0 -37.9
Q2:2017-18           4.0 40.4 55.6 -36.4
‘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
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 1250 20.1 15.1 64.8 5.0 21.6 9.1 69.3 12.5
Q2:2017-18           18.9 11.0 70.2 7.9
‘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
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 1250 15.7 28.2 56.0 -12.5 20.3 19.2 60.4 1.1
Q2:2017-18           20.3 20.0 59.7 0.3
‘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
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 1250 34.4 13.0 52.6 21.4 43.6 7.6 48.8 36.0
Q2:2017-18           42.7 9.0 48.4 33.7
‘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
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 1250 42.1 2.7 55.2 39.4 38.8 2.2 59.0 36.6
Q2:2017-18           34.5 2.5 63.0 32.0
‘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
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
Q1:2017-18 105.4 114.2
Q2:2017-18   113.3

1 The survey responses are those of the respondents and are not necessarily shared by the Reserve Bank of India. The 77th round (Q4:2016-17) survey results were released on April 6, 2017 on the RBI website.

2 The Business Expectations 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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