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Date : Oct 08, 2021
Industrial Outlook Survey of the Manufacturing Sector for Q2:2021-22

Today, the Reserve Bank released the results of the 95th round of the Industrial Outlook Survey (IOS). The survey encapsulates qualitative assessment of the business climate by Indian manufacturing companies for Q2:2021-22 and their expectations for Q3:2021-221. In all, 1414 companies responded in this round of the survey conducted during July-September 2021. 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 Q2: 2021-22

  • Manufacturing companies assessed a rebound in demand conditions based on production, order books and employment conditions during Q2:2021-22 after the contraction witnessed in Q1:2021-22 in the wake of second wave of the pandemic (Table A).

  • Capacity utilisation improved in Q2:2021-22 after a decline in the previous quarter.

  • Sentiments on financial situation improved substantially and optimism prevailed on availability of finance from all three sources (viz., internal accruals, banks and overseas).

  • Manufacturers perceived higher cost burdens stemming from input costs, cost of finance and salary outgo; they also assessed that a rise in selling prices would aid a recovery in profit margins.

  • The business assessment index (BAI)2 surged to 116.7 in Q2:2021-22 from 89.7 in the previous quarter, reflecting improvement in overall business sentiments in the Indian manufacturing sector (Chart 1).

B. Expectations for Q3: 2021-22

  • Production volumes, new orders and job landscape are expected to expand further in Q3:2021-22.

  • Manufacturers expect extended improvements in their capacity utilisation and overall financial situation.

  • Input cost pressures are likely to amplify in Q3:2021-22; selling prices and profit margins are expected to rise.

  • The business expectations index (BEI) surged further to 135.7 in Q3:2021-22 from 124.1 in the previous quarter (Chart 1).

Chart 1

C. Expectations for Q4:2021-22 and Q1:2022-23

  • Manufacturers perceive sequential improvements in production volume, order books, capacity utilisation, employment and overall business situation till Q1:2022-23 (Table B).

  • Respondents expect input cost pressures to continue, albeit with marginal easing, and selling prices to harden.

Table A: Summary of Net responses3 on Survey Parameters
(per cent)
Parameters Assessment period Expectation period
Q1:2021-22 Q2:2021-22 Q1:2021-22 Q3:2021-22
Production -25.9 33.8 52.0 71.5
Order Books -16.4 34.7 50.4 70.3
Pending Orders 10.0 -1.6 -3.7 -4.1
Capacity Utilisation -26.1 28.8 45.4 65.2
Inventory of Raw Materials -0.3 -14.7 -17.5 -29.4
Inventory of Finished Goods -4.2 -14.9 -19.4 -30.7
Exports -7.8 31.5 43.6 64.3
Imports 1.7 30.2 42.8 60.4
Employment -3.5 24.9 26.1 50.9
Financial Situation (Overall) -12.7 32.8 48.2 68.6
Availability of Finance (from internal accruals) -4.3 28.5 38.6 61.9
Availability of Finance (from banks & other sources) -2.4 28.3 35.5 58.7
Availability of Finance (from overseas, if applicable) 1.6 31.5 42.7 65.9
Cost of Finance -4.5 -28.6 -31.5 -55.8
Cost of Raw Material -52.3 -61.0 -54.9 -75.2
Salary/ Other Remuneration -19.9 -31.3 -31.6 -50.4
Selling Price 19.6 38.2 28.2 57.4
Profit Margin -32.2 9.4 32.7 51.7
Overall Business Situation -20.6 34.0 52.4 70.3

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 94 Round 95
Q2:2021-22 Q3:2021-22 Q4:2021-22 Q1:2022-23
Overall Business Situation 52.4 70.3 78.4 76.9
Production 52.0 71.5 77.4 75.4
Order Books 50.4 70.3 76.9 75.9
Capacity Utilisation 45.4 65.2 74.8 73.0
Employment 26.1 50.9 65.8 54.7
Cost of Raw Materials -54.9 -75.2 -74.2 -70.3
Selling Prices 28.2 57.4 69.3 56.4

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
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
Q4:2020-21 967 48.9 12.6 38.5 36.3 43.7 12.2 44.0 31.5
Q1:2021-22 1,281 16.5 42.3 41.2 -25.9 53.3 9.7 37.0 43.7
Q2:2021-22 1,414 44.5 10.7 44.8 33.8 58.8 6.8 34.3 52.0
Q3:2021-22           75.3 3.8 20.9 71.5
‘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
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
Q4:2020-21 967 46.4 13.3 40.3 33.1 41.1 13.7 45.2 27.3
Q1:2021-22 1,281 20.0 36.5 43.5 -16.4 51.0 7.8 41.1 43.2
Q2:2021-22 1,414 44.9 10.1 45.0 34.7 56.9 6.5 36.7 50.4
Q3:2021-22           73.9 3.6 22.4 70.3
‘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
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
Q4:2020-21 967 13.2 10.2 76.6 -3.0 5.6 14.8 79.7 9.2
Q1:2021-22 1,281 7.4 17.5 75.1 10.0 11.6 9.2 79.3 -2.4
Q2:2021-22 1,414 9.6 8.1 82.3 -1.6 10.8 7.2 82.0 -3.7
Q3:2021-22           8.8 4.8 86.4 -4.1
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
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
Q4:2020-21 967 40.6 11.5 47.9 29.1 34.7 10.6 54.7 24.1
Q1:2021-22 1,281 13.4 39.5 47.1 -26.1 45.2 7.3 47.5 38.0
Q2:2021-22 1,414 39.2 10.4 50.4 28.8 51.6 6.2 42.2 45.4
Q3:2021-22           68.3 3.1 28.5 65.2
‘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
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
Q4:2020-21 967 21.3 12.2 66.5 9.1 11.7 15.3 73.0 -3.6
Q1:2021-22 1,281 5.2 18.4 76.3 -13.2 25.3 8.4 66.2 16.9
Q2:2021-22 1,414 15.4 7.7 76.9 7.8 15.6 7.9 76.5 7.7
Q3:2021-22           30.4 3.7 65.9 26.7
‘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
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
Q4:2020-21 967 15.5 10.0 74.5 5.5 14.2 9.3 76.5 5.0
Q1:2021-22 1,281 10.8 13.0 76.2 -2.2 20.2 7.3 72.5 12.9
Q2:2021-22 1,414 17.3 7.6 75.1 9.7 28.4 5.8 65.8 22.6
Q3:2021-22           31.0 4.0 65.1 27.0
‘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
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
Q4:2020-21 967 31.6 16.0 52.4 15.5 25.1 12.1 62.7 13.0
Q1:2021-22 1,281 18.3 26.1 55.6 -7.8 38.7 9.0 52.3 29.6
Q2:2021-22 1,414 39.2 7.7 53.0 31.5 49.8 6.2 44.0 43.6
Q3:2021-22           67.3 3.1 29.6 64.3
‘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
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
Q4:2020-21 967 25.8 9.3 64.9 16.4 17.7 9.1 73.2 8.5
Q1:2021-22 1,281 18.9 17.1 64.0 1.7 32.6 6.6 60.8 26.1
Q2:2021-22 1,414 36.0 5.8 58.2 30.2 47.3 4.5 48.3 42.8
Q3:2021-22           63.4 2.9 33.7 60.4
‘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
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
Q4:2020-21 967 17.5 6.5 76.0 -11.1 12.0 5.3 82.8 -6.7
Q1:2021-22 1,281 11.5 11.2 77.3 -0.3 17.2 5.4 77.4 -11.8
Q2:2021-22 1,414 20.2 5.5 74.4 -14.7 23.7 6.2 70.0 -17.5
Q3:2021-22           33.7 4.4 61.9 -29.4
‘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
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
Q4:2020-21 967 15.2 7.5 77.3 -7.6 11.5 5.1 83.4 -6.3
Q1:2021-22 1,281 14.4 10.2 75.4 -4.2 16.4 5.5 78.1 -10.9
Q2:2021-22 1,414 20.0 5.2 74.8 -14.9 25.0 5.6 69.4 -19.4
Q3:2021-22           34.4 3.8 61.8 -30.7
‘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
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
Q4:2020-21 967 19.4 8.5 72.1 10.9 14.6 7.3 78.1 7.2
Q1:2021-22 1,281 9.1 12.7 78.2 -3.5 23.5 5.5 71.0 17.9
Q2:2021-22 1,414 29.5 4.6 65.9 24.9 28.6 2.5 69.0 26.1
Q3:2021-22           52.2 1.3 46.5 50.9
‘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
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
Q4:2020-21 967 43.0 13.6 43.4 29.4 39.2 6.2 54.6 33.0
Q1:2021-22 1,281 17.8 30.6 51.6 -12.7 53.4 6.1 40.5 47.3
Q2:2021-22 1,414 41.7 8.9 49.4 32.8 54.0 5.8 40.2 48.2
Q3:2021-22           71.5 2.9 25.7 68.6
‘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
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
Q4:2020-21 967 30.8 7.7 61.4 23.1 28.5 3.7 67.8 24.8
Q1:2021-22 1,281 24.4 14.0 61.7 10.4 37.6 5.2 57.3 32.4
Q2:2021-22 1,414 39.6 4.7 55.7 34.9 44.7 3.0 52.2 41.7
Q3:2021-22           63.3 2.2 34.4 61.1
‘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
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
Q4:2020-21 967 33.3 9.6 57.1 23.7 28.3 5.6 66.1 22.8
Q1:2021-22 1,281 13.3 17.6 69.1 -4.3 39.7 5.1 55.2 34.7
Q2:2021-22 1,414 35.3 6.8 57.9 28.5 42.4 3.8 53.7 38.6
Q3:2021-22           64.1 2.1 33.8 61.9
‘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
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
Q4:2020-21 967 23.1 6.6 70.3 16.5 19.6 4.3 76.1 15.3
Q1:2021-22 1,281 10.7 13.1 76.1 -2.4 30.0 4.4 65.6 25.6
Q2:2021-22 1,414 33.2 4.9 61.8 28.3 38.4 2.9 58.8 35.5
Q3:2021-22           60.6 1.9 37.5 58.7
‘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
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
Q4:2020-21 967 7.5 4.8 87.7 2.7 7.2 3.4 89.3 3.8
Q1:2021-22 1,281 13.6 12.0 74.5 1.6 16.5 3.1 80.3 13.4
Q2:2021-22 1,414 33.8 2.3 63.9 31.5 44.0 1.3 54.7 42.7
Q3:2021-22           66.5 0.6 32.8 65.9
‘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
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
Q4:2020-21 967 16.7 13.3 70.0 -3.4 13.3 8.3 78.4 -5.0
Q1:2021-22 1,281 15.7 11.3 73.0 -4.5 22.2 8.2 69.6 -13.9
Q2:2021-22 1,414 32.5 4.0 63.5 -28.6 34.9 3.3 61.8 -31.5
Q3:2021-22           58.3 2.5 39.3 -55.8
‘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
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
Q4:2020-21 967 71.0 2.0 26.9 -69.0 45.2 2.6 52.2 -42.7
Q1:2021-22 1,281 58.1 5.8 36.1 -52.3 64.9 2.5 32.6 -62.4
Q2:2021-22 1,414 62.5 1.4 36.1 -61.0 56.8 2.0 41.2 -54.9
Q3:2021-22           76.6 1.4 22.1 -75.2
‘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
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
Q4:2020-21 967 21.8 3.1 75.1 -18.7 19.9 3.9 76.2 -16.0
Q1:2021-22 1,281 26.4 6.5 67.1 -19.9 42.7 1.2 56.1 -41.6
Q2:2021-22 1,414 33.1 1.8 65.2 -31.3 32.5 0.9 66.6 -31.6
Q3:2021-22           51.2 0.9 47.9 -50.4
‘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
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
Q4:2020-21 967 31.3 8.6 60.1 22.7 19.6 8.9 71.5 10.7
Q1:2021-22 1,281 26.9 7.3 65.8 19.6 35.0 5.8 59.1 29.2
Q2:2021-22 1,414 42.0 3.9 54.1 38.2 31.1 2.9 66.0 28.2
Q3:2021-22           59.7 2.3 38.0 57.4
‘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
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
Q4:2020-21 967 24.9 22.9 52.1 2.0 17.8 20.1 62.1 -2.4
Q1:2021-22 1,281 11.8 44.0 44.2 -32.2 28.8 17.8 53.4 11.0
Q2:2021-22 1,414 30.0 20.6 49.5 9.4 43.7 11.0 45.3 32.7
Q3:2021-22           59.9 8.2 31.9 51.7
‘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
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
Q4:2020-21 967 49.0 12.4 38.6 36.5 48.2 7.6 44.2 40.7
Q1:2021-22 1,281 18.6 39.2 42.3 -20.6 57.7 5.1 37.2 52.5
Q2:2021-22 1,414 43.5 9.5 47.0 34.0 59.9 7.5 32.5 52.4
Q3:2021-22           73.1 2.8 24.1 70.3
‘Better’ Overall Business Situation is optimistic.

Table 23: Business Sentiments
Quarter Business Assessment Index (BAI) Business Expectations Index (BEI)
Q2:2020-21 96.2 99.5
Q3:2020-21 108.6 111.4
Q4:2020-21 113.1 114.1
Q1:2021-22 89.7 119.6
Q2:2021-22 116.7 124.1
Q3:2021-22   135.7

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 August 6, 2021. This round of the survey was launched on July 20, 2021 and results were compiled with data received till September 24, 2021.

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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