India's 65% firms report squeezing of profits, 50% plus say sales were less than normal: IIM-Ahmedabad survey

By Our Representative
An Indian Institute of Management-Ahmedabad (IIM-A) survey, based on responses from 1941 companies, has revealed that, while inflation and costs may not be issues with them, but squeezing profits and sales is surely bothering them. Called Business Inflation Expectations Survey (BIES), March 2018, it seeks to quantify “slack” that may have set into the India economy.
Providing a short and medium term perspective, the survey, carried out each month, asks questions about year-ahead cost expectations and the factors influencing price changes, such as profit, sales levels, etc.
IIM-A claims, “The survey is unique in that it goes straight to businesses, the price setters, rather than to consumers or households, to understand their expectations of the price level changes.”

As many as 44% of the firms in the IIM-A’s BIES’ 11th round survey indicate “much less than normal” profit margin, while over 65% of firms continue to report “squeezing of profit margins”, the survey report says, adding, “This proportion has remained more or less stable during last four months.”

Profit margins - % response

Pointing out that the “perception of higher profit margins in the current economic conditions is not supported by the data”, the report states, 28% of the firms in the sample reported that sales were “much less than normal”, and this proportion has been quite stable during last four consecutive months.
At the same time, the report says, over half of the firms in the sample continued to report that sales levels were “much or somewhat less than normal”, adding, “Overall data shows persistence of the pessimism about subdued sales conditions.”

Sales levels - % response

The IIM-A believes, “One major advantage of BIES is that one can get a probabilistic assessment of inflation expectations and thus can get a measure of uncertainty. It also provides an indirect assessment of overall demand condition of the economy.”
It adds, “Results of this survey are, therefore, useful in understanding the inflation expectations of business and complement other macro data required for policy making… The questionnaire of BIES is finalized based on the detailed feedback received from the industry, academicians and policy makers.”

Costs per unit compare with this time last year? – % responses

Companies, mostly in the manufacturing sector, were selected based on certain sampling criteria from the list of companies as available with the Ministry of Corporate Affairs (MCA).
As for inflation expectations, the report states, “One year ahead business inflation expectation in March 2018, as estimated from the mean probability distribution of unit cost increase, is placed at 3.73%, showing a decline from 3.85% observed in February 2018.”

One year ahead business inflation expectations (%)

It adds, “Uncertainty of business inflation expectations in February 2018, as captured by the square root of the average variance of the individual mean probability distributions, is estimated to be 1.99% (remained almost same as observed in February 2018).”
As regards cost perceptions, the report states, the data in does not indicate “significant increase” in costs, with “around 55% of the firms in reporting that “increase in costs has been more than 3% during the last one year. It adds, “This proportion has almost remained unchanged as compared to February 2018 data.”