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Date : Oct 04, 2017
Industrial Outlook Survey of the Manufacturing Sector for Q2:2017-18

Today, the Reserve Bank released results of the 79th round of the Industrial Outlook Survey (IOS) conducted in July-September 2017. The Survey captures qualitative assessments of the business situation by companies in the Indian manufacturing sector for Q2:2017-18 and their expectations for Q3:2017-181. Responses were received from 1141 companies in this round of the survey.

Highlights:

1. Assessment for Q2:2017-18

1.1 Respondents were more optimistic in Q2:2017-18 on the parameters, pending order, exports, imports, and employment; and were less optimistic in case of order books, raw material inventory, finished goods inventory, and overall business situation.

1.2 Optimism on the overall financial situation declined, due to worsening of the availability of finance.

1.3 Sentiment on cost of finance and raw materials improved marginally and salaries seem to have decreased, but profit margins have shrunk due to pessimism surrounding selling prices.

1.4 Overall, business sentiment in the Indian manufacturing sector has worsened, as reflected in the decline in the Business Expectations Index (BEI)2 from 105.4 in Q1:2017-18 to 103.6 in Q2:2017-18.

2. Expectations for Q3:2017-18

2.1 The outlook for demand parameters for Q3:2017-18 improved across parameters. However, availability of finance may deteriorate further in Q3:2017-18.

2.2 The outlook on cost of raw materials and cost of finance for Q3:2017-18 improved but manufacturing sector may continue to lose pricing power resulting into low profit margin.

2.3 The BEI (expectation) for Q3:2017-18 has shown marginal improvement.

Summary Table
Net response3 (in %) comparison over previous quarter
Parameters Assessment period Expectation period
Q1:2017-18 Q2:2017-18 Q2:2017-18 Q3:2017-18
Production 16.0 16.4 30.2 34.3
Order Books 13.7 12.1 28.0 29.9
Pending Orders 11.3 13.7 6.0 6.7
Capacity Utilisation 7.1 7.1 16.3 20.8
Exports 3.4 8.8 16.3 19.0
Imports 7.1 8.9 10.7 12.8
Employment 5.4 7.3 8.7 10.4
Financial Situation (Overall) 19.1 15.8 27.9 28.7
Availability of Finance (from internal accruals) 14.1 13.7 20.4 20.2
Availability of Finance (from banks & other sources) 14.9 13.8 16.9 14.1
Availability of Finance (from overseas, if applicable) 5.8 5.0 7.0 4.1
Cost of Finance -1.2 -0.5 -3.8 -2.2
Cost of Raw Material -42.1 -41.8 -36.4 -31.9
Selling Price 5.0 -0.1 7.9 7.0
Profit Margin -12.5 -14.0 0.3 1.8
Overall Business Situation 21.4 17.3 33.7 36.9
Salary 39.4 34.5 32.0 23.9
Business Expectations Index 105.4 103.6 113.3 115.0

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#
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 1141 34.9 18.5 46.6 16.4 42.2 12.0 45.8 30.2
Q3:2017-18           43.4 9.1 47.5 34.3
‘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
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 1141 31.8 19.7 48.5 12.1 39.7 11.7 48.6 28.0
Q3:2017-18           39.6 9.6 50.8 29.9
‘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
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 1141 17.9 4.2 77.9 13.7 12.5 6.5 81.0 6.0
Q3:2017-18           11.4 4.7 83.9 6.7
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
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 1141 22.9 15.8 61.3 7.1 27.6 11.3 61.1 16.3
Q3:2017-18           28.8 8.0 63.2 20.8
‘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
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 1141 9.7 15.6 74.7 -6.0 9.7 10.8 79.5 -1.1
Q3:2017-18           11.4 9.6 79.0 1.8
‘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
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 1141 10.4 7.4 82.2 3.0 12.2 6.6 81.2 5.6
Q3:2017-18           11.1 6.5 82.4 4.6
‘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
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 1141 24.2 15.4 60.4 8.8 27.9 11.6 60.5 16.3
Q3:2017-18           27.6 8.6 63.8 19.0
‘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
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 1141 17.1 8.2 74.7 8.9 18.6 7.9 73.5 10.7
Q3:2017-18           17.8 5.0 77.2 12.8
‘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
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 1141 6.2 13.1 80.8 -6.9 6.1 10.7 83.2 -4.6
Q3:2017-18           4.3 10.4 85.4 -6.1
‘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
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 1141 7.1 15.9 77.0 -8.8 6.0 11.6 82.4 -5.6
Q3:2017-18           6.2 10.0 83.8 -3.8
‘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
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 74.9 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 1141 15.5 8.2 76.3 7.3 15.2 6.5 78.3 8.7
Q3:2017-18           15.8 5.3 78.9 10.4
‘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
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 1141 29.0 13.2 57.7 15.8 35.6 7.7 56.6 27.9
Q3:2017-18           35.3 6.6 58.1 28.7
‘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
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 1141 29.7 6.3 64.1 23.4 29.4 5.7 65.0 23.7
Q3:2017-18           30.5 4.1 65.4 26.4
‘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
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 1141 23.2 9.5 67.3 13.7 26.8 6.4 66.9 20.4
Q3:2017-18           25.8 5.6 68.6 20.2
‘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
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 1141 19.8 6.1 74.1 13.8 21.5 4.6 73.9 17.0
Q3:2017-18           18.6 4.5 77.0 14.1
‘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
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 1141 8.0 3.0 89.0 5.0 10.9 3.9 85.2 7.0
Q3:2017-18           7.2 3.0 89.8 4.1
‘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
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 1141 14.0 14.5 71.6 -0.5 10.9 14.7 74.5 -3.8
Q3:2017-18           11.9 14.1 74.0 -2.2
‘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
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 1141 5.0 46.8 48.2 -41.8 4.0 40.4 55.6 -36.5
Q3:2017-18           5.7 37.6 56.7 -31.9
‘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
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 1141 16.1 16.2 67.6 -0.1 18.9 11.0 70.2 7.9
Q3:2017-18           17.5 10.6 71.9 7.0
‘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
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 1141 14.5 28.5 57.1 -14.0 20.3 20.0 59.7 0.3
Q3:2017-18           19.6 17.8 62.5 1.8
‘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
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 1141 31.7 14.4 53.9 17.3 42.7 9.0 48.4 33.7
Q3:2017-18           42.9 6.0 51.1 36.9
‘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
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 1141 36.7 2.2 61.2 34.5 34.5 2.5 63.0 32.0
Q3:2017-18           25.9 2.0 72.1 23.9
‘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
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
Q2:2017-18 103.6 113.3
Q3:2017-18   115.0

1 The survey responses are those of the respondents and are not necessarily shared by the Reserve Bank of India. The 78th round (Q1:2017-18) survey results were released on August 2, 2017 on the RBI website.

2 The Business Expectations Index (BEI) is a composite indicator calculated as a weighted (share of GVA of different industry group) net response of nine business indicators. The nine indicators considered for the computation of the 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 snapshot of the business outlook in every quarter. BEI takes values between 0 and 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 Eis 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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