58% of India's business leaders feel manufacturing cost is up, 61% say profit is less than normal: IIM-A survey

Current costs per unit compare with this time last year: % responses

By Our Representative
An Indian Institute of Management-Ahmedabad (IIM-A) survey has found that nearly one-fourth of Indian manufacturing firms have reported “significant increase (by 6.1% to 10%) in costs”, while around three-fifth of firms reported that “increase in costs has been more than 3% during the last one year”.
Pointing out that “this proportion has been increasing during last 3 months”, the survey finds that 58% of 1,949 business leaders feel that manufacturing costs are up, either moderately (3.1-6%), or significantly (6.1%-10%), or up very significantly (more than 10%).
Suggesting that, overall, things do not seem to be improving fast enough, the survey, carried out in May 2018, finds that just about 12% said profits were “somewhat greater than normal” or “much greater than normal” as against 13% a month earlier, in April.

Profit Margins: % response

Even as saying that “the proportion of firms responding ‘much less than normal’ profit has been consistently declining over the last four months”, the survey finds that 38% of respondents said profits were “much less than normal”, down from 41% a month earlier, another 23% said, they were “somewhat less than normal”, and 27% said they were “about normal.”

The survey also finds that, “one year ahead business inflation expectation in May 2018, as estimated from the mean probability distribution of unit cost increase, is placed at 4.1%”, adding, “Inflation expectations remained above 4% for the last two consecutive months.”

Profit margins: % response

At the same time, it says, “Uncertainty of business inflation expectations in May 2018, as captured by the square root of the average variance of the individual mean probability distributions, has marginally declined to 2.14% from 2.24% observed in April 2018.”
Coming to the sales, the report states, “28% of the firms in the sample reported that sales are ‘much less than normal’, and “this proportion has been quite stable during last six consecutive months”, adding, “For the first time, over half of the firms in the sample reported that sales levels are becoming normal or greater than normal. Overall data shows gradual improvement in sales conditions.”

One year ahead business inflation expectations (%)

IIM-A’s Business Inflation Expectations Survey (BIES), released last week, examines the amount of slack in the economy by polling a panel of business leaders about their inflation expectations in the short and medium term. A monthly survey, it asks year-ahead cost expectations and factors influencing price changes, such as profit, sales levels, etc.
Claiming to be unique, the IIM-A report on the survey says, it “goes straight to businesses, the price setters, rather than to consumers or households, to understand their expectations of the price level changes”, adding, “One major advantage of BIES is that one can get a probabilistic assessment of inflation expectations and thus can get a measure of uncertainty.”

Also providing “an indirect assessment of overall demand condition of the economy”, the report says, “Results of this Survey are useful in understanding the inflation expectations of business and complement other macro data required for policy making.” Introduced in May 2017, the questionnaire of BIES is based on feedback received from industry leaders, academicians and policy makers.
Companies, mostly in the manufacturing sector, are selected from the list of companies as available with the Ministry of Corporate Affairs (MCA). The 12th round of survey is based on the responses of 1,941 companies.